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June 2016

Policy Paper
on Infrastucture
Policy Challenges in the Implementation
of Performance-based Contracting for
Road Maintenance
Notice
This report was produced by Roughton International
Limited for the European Bank for Reconstruction and
Development (EBRD) for the specific purpose of the
IPPF - Performance Based Contracting for Roads -
Policy Dialogue.

This report may not be used by any person other than


with the EBRD’s express permission. In any event
Roughton International Limited accepts no liability for any
costs, liabilities or losses arising as a result of the use of
or reliance upon the contents of this report by any person
other than the EBRD.
Contents
Forword i
1. INTRODUCTION 1-1
2. KEY CONCEPTS OF PERFORMANCE-BASED MAINTENANCE CONTRACTS 2-1
2.1 Approaches to Road Maintenance 2-1
2.2 Basic philosophy of PBM Contracts 2-2
2.3 Form and Extent of the PBM Contracts 2-5
2.4 PBM Contract duration and progression 2-6
2.4.1 Pilot PBM Contracts 2-7
2.4.2 Second generation PBM Contracts 2-9
2.4.3 Comprehensive PBM Contracts 2-9
2.4.4 Comprehensive PBM Contracts + Asset Management 2-9
2.5 Initial repairs and Emergency Works in PBM Contracts 2-10
2.6 Incentives and penalties in a PBM Contract 2-11
2.6.1 Incentives 2-11
2.6.2 Penalties 2-11
2.7 Input-based and Performance-based Road Maintenance -
advantages and disadvantages 2-13
2.7.1 Problems and benefits of Input-based Road Maintenance Contracts 2-13
2.7.2 Problems and benefits of Performance-based Road Maintenance Contracts 2-14
3. ISSUES AND SOLUTIONS TO BE CONSIDERED BEFORE PBM ADOPTION 3-1
3.1 General approach 3-1
3.2 Issues and possible solutions 3-0
3.2.1 Legal Framework 3-0
3.2.2 Financial 3-6
3.2.3 The Contracting Industry 3-6
3.2.4 The Roads Agency 3-11
3.2.5 Consultants 3-14
3.2.6 Policy Makers 3-15
3.2.7 Control/Audit Authorities 17
3.2.8 Road Conditions 19
4. INTRODUCING PERFORMANCE-BASED MAINTENANCE 4-1
4.1 Enabling conditions 4-1
4.2 A typical PBM Programme 4-3
4.3 Commencing a PBM Programme - Pilot projects 4-4
4.3.1 Legal, Regulatory and Financial Climate 4-4
4.3.2 Data 4-4
4.3.3 Long-Term Strategy 4-5
4.3.4 Selection of roads for Pilot projects 4-5
4.3.4.1 Rural and Urban Roads 4-5
4.3.4.2 Preferred Road Package 4-5
4.3.5 Technical Assistance 4-6

June 2016
4.3.6 Pilot Implementation 4-7
4.3.6.1 Classifying and determining appropriate maintenance standards 4-7
4.3.6.2 Assessing the existing roads 4-7
4.3.6.3 Estimating costs 4-7
4.3.6.4 Assessing the local contracting and consulting industries 4-8
4.3.6.5 Selecting a roads package 4-8
4.3.7 The Contract 4-8
4.3.8 Allocation of Risk 4-9
4.3.8.1 Physical Risks 4-10
4.3.8.2 Contractual Risks 4-11
4.3.8.3 Contractor’s Financing and the Banking System 4-12
4.3.9 The timeline for a pilot PBM Contract 4-12
4.3.10 Procurement 4-13
4.3.11 Supervision and Control 4-13
4.3.12 Incentives and Penalties 4-14
4.3.12.1 Incentives 4-14
4.3.12.2 Penalties 4-14
4.4 After the Pilot - The Way Forward 4-15
4.4.1 The Expansion of a PBM 4-15
4.4.2 The Inclusion of Periodic Maintenance 4-15
4.4.3 Execution of Rehabilitation 4-15
5. KEY MESSAGES TO EBRD AND ROAD AUTHORITIES
IN THE TRANSITION REGION FOR THE FUTURE 5-1
6. ANNEXES 6-1
Annex 1: AN OVERVIEW OF INNOVATIVE INTERNATIONAL CONTRACTING PRACTICES
FOR ROAD MAINTENANCE 6-0
Annex 2: INTERNATIONAL BEST PRACTICE 6-0
Example 1: Brazil 6-0
Example 2: District of Columbia, USA 6-1
Annex 3: REGIONAL EXPERIENCE IN THE TRANSITION REGION –
CASE STUDIES AND IDENTIFICATION OF KEY ISSUES 6-2
Albania 6-0
Kazakhstan 6-1
Moldova 6-2
Morocco 6-3
Romania 6-4
Serbia 6-5
Annex 4: A TYPICAL PBM PROGRAMME GHANNT CHART...................................................6-0

Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Foreword
The topic of this policy paper – how to develop with PPPs, PBMCs only create ‘value for money’
contractual methods to secure the full usable-life of (VfM) versus the traditional input-based ‘unit-cost’
roads – is of critical economic and fiscal importance contracts when the public monitors the contracts in a
to all countries, but especially so for countries with professional and diligent manner.
limited public budgets for road rehabilitation and
maintenance. In most developing and merging This policy paper was produced under the auspices
market economies (EMDEs), which include the EBRD’s of EBRD’s Infrastructure Project Preparation
client countries, roads require rehabilitation, or indeed Facility (IPPF), and has funded the effort with the
even reconstruction, many years before the date one active engagement of a number of EBRD’s client
would have expected according to their original year countries interested in improving their efforts to
of construction. Simply put: usable life is not equal implement PBMC. In addition to preparing well-
to design life: it is not uncommon to find that a road structured infrastructure projects for client countries,
must be rehabilitated only halfway into its estimated disseminating good practice and knowledge is critical
original asset duration. Whilst harsh climate to the mission of EBRD’s IPPF.
conditions with large seasonal temperature changes
may play a role, much of this ‘premature’ investment We would like to thank the active and engaged
is down to lack of systematic maintenance that is contributions from the public sector experts from
normally applied in countries with regular ‘asset Albania, Azerbaijan, Bulgaria, Moldova, Morocco,
management’ funding regimes. As numerous studies Kazakhstan, Romania and Serbia; EBRD colleagues
by the OECD, the World Bank and others have shown, Toshi Sakatsume, Yulia Martyushina; as well as Mike
every 1 euro/dollar of deferred maintenance today Taylor and Edin Begovic from Roughton who acted as
results in 3 euro/dollars needed in rehabilitation principal external consultant in the preparation of the
tomorrow. Fortunately, applying Performance-Based paper. Their collective inputs and feedback during the
Maintenance Contracting (PBMC) to the road sector seminar and the preparation of the policy paper itself
can produce significant improvements for the fiscal have greatly improved the final product.
purse and for users in the form of better maintained
and therefore safer roads. As one of a series of IPPF-funded policy papers on
the infrastructure sector prepared over the course of
This paper provides a condensed yet substantive 2016 and 2017, the EBRD looks forward to further
overview of the key international lessons learned dialogue with all its client countries in the road sector,
in the area of PBMC. As explained, not only must for both the preparation of PBCs, as well as other
the performance standards be carefully set and complex infrastructure investments to produce
calibrated to the particular country/road network bankable and scalable projects.
under analysis, but one has to pay close attention
to the state of development of the local private road Matthew Jordan-Tank
construction/maintenance industry which will be (EBRD, Head of Infrastructure Policy and IPPF)
asked to bid on the performance-based contracts.
The paper also highlights the importance of building Marcos Martinez Garcia
up the local capacity of the public sector over time (EBRD, Principal PPP Specialist, IPPF)
and learning what it takes to monitor PMBC contracts.
If performance criteria are not able to be verified by
competent and well-organised public sector actors, it
will prove difficult to hold the private sector contractor
accountable through enforcement of standards. As

June 2016 i
1. Introduction
Road authorities worldwide face mounting problems The PBM concept for roads has generally been found
with maintaining the serviceability of their road to be less successful in most of the EBRD’s Countries
networks. Over the years there has been a gradual of Operation (COO) in South-Eastern Europe and
progression in road maintenance philosophy. In the CIS (Commonwealth of Independent States),
general terms, it was traditionally carried out directly when compared to countries (both developed and
by the road authority with its own maintenance developing) where successful implementation of PBM
organisation supplementing its own capacity, to a type contracts has been pointed out as a positive
greater or lesser degree, by contracting some works example for this new approach to road maintenance.
to contracting companies. Over the years, there has
been a steady rise in the contracted element of the This raises the questions:
works with many authorities reaching the point where
all maintenance activity is carried out by contractors 1. Is present approach towards introduction of PBMC
applying traditional methods of contracting and in transition countries the right one?
measurement of works under the authority’s 2. Are EBRD COOs ready for the implementation of
supervision. PBM?
3. What is the the scope and timing of reforms that
Over the last 20 years, however, there has been a need to be introduced in each individual country to
steady rise in implementing contracted maintenance enable introduction of PBM concept?
through the use of performance based methods1. 4. Are there better ways how EBRD and the other
Under this Performance Based Maintenance (PBM) IFIs can back the implementation of PBM in these
methodology, the contract is based on the concept countries?
of payment for specified results (resulting in a well
maintained road) based on the Contractor meeting Some countries simply may not yet be ready for PBMC
specified standards of performance rather than due to a variety of reasons:
measuring and paying for the quantities of work
which he actually does, i.e. based on outputs. This • Legal and regulatory reasons related to financing
contracting method is generally considered to be and implementation of multi-annual, long term
more cost effective than the traditional, input based, contracts;
methods using measurement of units of work • Market readiness including presence of the
undertaken with payment at unit rates. private companies with the required expertise and
resources;
In most developed countries, output-based • Economic situation;
contracting of road maintenance operations has • Political instability;
been effective, where appropriate conditions and • Development level of the local contracting industry;
institutional settings have been in place. It requires • Strategy for road maintenance operations,
careful preparation in order to create a contract that is particularly the belief that must be carried out by
balanced, provides an adequate incentive for private state-owned and controlled companies;
sector participation, and is feasible. • Vested interests; or
• Lack of awareness and detailed knowledge of
PBMC.

1 There are many acronyms in use for performance based methods. For simplicity’s sake this Paper tries to restrict itself to just two: PBM for
Performance Based Maintenance (PBMC being used as an extension of PBM to refer to a PBM Contract) and PBC for Performance Based
Contracting where PBC is used to refer to contracts implemented using the performance based ethos for works which may include construction
as well as maintenance.

1 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Experience of other IFIs (International Financing The main objectives of the dialogue with EBRD
Institutions)/donor programmes and countries and beneficiaries from selected target countries
is widely available and some example cases are (COOs) and of this follow-up Policy Paper were to:
described in this document. The World Bank (WB)
has been particularly proactive in promoting PBM i. IDENTIFY CHALLENGES and RECOMMEND
(often OPBRMC in WB jargon); however, although SOLUTIONS that would enable successful
WB supported PBM projects have generally been implementation of PBMCs;
described as successful, particularly in the pilot stage, ii. Provide Governments in the COOs with
sustainability is an issue. information and guidance on policy reforms
required to facilitate the use of PBMCs.
This Infrastructure Policy Dialogue Initiative is aimed
at assessing the key conditions required for the The one-day seminar took place in London on 27th
successful initiation of PBMC, the major issues May 2016 bringing participants from six of the target
requiring resolution before initiation and, in general, countries together2 at a round table to discuss
how can EBRD’s COOs begin to move effectively and address policy issues and market oriented
toward PBM contracting for road maintenance. The reforms needed in order to implement PBMCs and/
participants in the Infrastructure Policy Dialogue (IPD) or improve the way the sector functions. During the
tried to assess why, what and how needs to be done event, identified issues were addressed by EBRD
to change the approach to PBMC at policy level. and the Consultant who shared their knowledge and
similar experiences and provided advice on the best
The Initiative comprised a combination of structured solutions for these and other issues raised.
interviews and communications with beneficiaries
from selected countries and a substantial seminar This Policy Paper follows from the seminar and
at which issues were identified and discussed. It addresses the transition and reform issues identified.
specifically targeted markets in Albania, Azerbaijan, It focuses on defining the challenges and their
Bulgaria, Moldova, Morocco, Kazakhstan, Romania importance to the sector, and points toward the
and Serbia involving key stakeholders, such as road range of possible policy solutions including best-
agencies, regulators and policy makers. practice, market-driven approaches and other
“commercialised” alternatives which might be used to
achieve successful results.

2 Unfortunately Azerbaijan and Bulgaria were unable to attend.

June 2016 2
2. K
 ey concepts of performance-
based maintenance contracts
This section describes the general concepts and The three methodologies are not wholly separate
characteristics that need to be known about PBC in and a considerable amount of overlap between the
Road Maintenance. It is a high-level description of the different models can occur.
model and its peculiarities.
100%

private sector engagement


2.1 A
 pproaches to road maintenance
Road maintenance is usually carried out through one
of three contracting methodologies:

In house The Road Agency uses its own


0
(direct labour) staff, labour and resources. In-House/Direct Measurement Performance
Labour (Input) Based (Output) Based
Measurement External contractors work
Maintenance Maintenance
(Input) Based under the instructions/inputs
Maintenance of the agency staff and are paid
using unit rates applied to the The in-house model, under which the Road Agency
measured volumes of work retained its own maintenance organisation and
items executed. Contractors are carried out all operations with its own labour and
usually selected through some equipment, was always prepared to make use of
form of open tender procedure. contractors’ services when faced with tasks which it
could not accomplish itself. A gradual, and in some
Performance Contractors are paid a fixed rate
cases abrupt, change took place under which the
(Output) Based or lump sum for maintaining
in-house organisations found it more and more
Maintenance an identified road or group of
economical to contract elements of maintenance
roads to predefined standards,
to the contracting industry. This was especially the
regardless of the works required.
case with equipment-intensive operations where
the industry was better equipped and better able to
utilise its equipment on a wider variety of operations.
In many countries the process had progressed to the
point where all maintenance was being carried out
by contractors executing operations on the basis of
tendered rates, as directed by the Agency.

PBM is the most recent maintenance model. It


places the responsibility for operational decisions
on the Contractor and simply requires roads to be
maintained to set standards. The model is gradually
winning fairly widespread acceptance and has been
adopted as the basic model for the implementation of
maintenance in many countries.

3 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
The progression through the three models has been 2.2 Basic Philosophy of
driven principally by the desire for better maintenance PBM Contracts
and/or reduced maintenance costs and it is generally
accepted that PBM, effectively implemented, will The essence of the PBM concept is that the
provide either the same level of maintenance for less Contractor undertakes to carry out all necessary
money or a higher level of maintenance for the same maintenance to a road or roads to keep them at
money than its predecessors. a predetermined required standard. There is no
measurement of the volume of works carried out
Cost savings of PBM relative to conventional and the agency does not dictate to the Contractor
contracts in selected countries what should be done or when it should be done.
The Contractor is free to organise the work
Country Cost savings required as and when it suits him subject only to
Norway About 20% - 40% maintaining the road at the specified standard. The
Contractor is responsible for quality control, both
Sweden About 30%
of the overall standard of maintenance and of the
Finland About 30% - 35% details of materials used and work performed. His
Holland About 30% - 40% performance is measured by monitoring a specific set
Estonia 20% - 40% of measurable values related to road condition – a
typical example is shown in a Table 1.
England 10% minimum
Australia 10% - 40% Direct cost implications aside, the attractions of the
New Zealand About 20% - 30% PBMC model from the Agency’s viewpoint, are that
it should reduce the technical inputs (and therefore
United States 10% - 15%
the staffing levels) as well as physical infrastructure
Ontario, Canada About 10% (maintenance depots, equipment, stockpiled
Alberta, Canada About 20% materials etc) required from the government agency to
a minimum whilst providing a guaranteed, consistent,
British Columbia, Some, but might be in
visible level of maintenance throughout the contract
Canada the order of 10%
period and across all the contract road sections.
Source: P
 . Pakkala cited in World Bank Transport Note no. TN-27,
Sept. 2005. From the Contractors’ side, the attraction is that in
return for receiving a smooth monthly inome they
This table is commonly quoted and often queried. are free to organise the works needed to accomplish
Note however, that listed countries have reasonable this in the manner that best suits them ie in the most
estimates of their costs and their maintenance economical manner for them in terms of applying the
standards were roughly the same before and after lowest cost organisational and technical model for
adoption of PBM. delivery of standard of maintenance specified by the
contract. As the fixed revenue side for the Contractor
Whilst the detail of the quoted savings is open to is no longer a variable of interest,, his focus shifts to
query, it is clear that in all cases, there is a reported delivering the required quality at least possible cost.
cost saving from the adoption of PBM.

June 2016 4
Performance indicators – an example

Pavement maintenance
Indicator Target value Measurement/detection Response time and
tolerance permitted
Potholes No pothole permitted Visual inspection; ruler Any pothole must be repaired
within 7 days from the
detection.
Patching Patches (i) shall be squared Visual inspection (for Any non-complaint patch
or rectangular, (ii) shall detection of (i) and (iii)); Ruler must be repaired in within 7
be level with surrounding (for detection of (ii)); Small days from the detection.
pavement, (iii) shall be transparent ruler (for iv)
made using materials
similar to those used for the
surrounding pavement and,
(iv) shall not have cracks
wider than 3 mm.
Cracks There shall not be any crack Crack widths measured with Any crack wider than 3 mm
more than 3 mm wide. There small transparent ruler. For and/or any cracks with a total
shall not be more than 10m calculation of the length length of 10m or more shall
of cracks on a street. of a crack, 0.5 m will be be sealed within 7 days from
considered at each edge of the detection.
each crack.
Rutting There shall not be ruts Measured with two rulers Rutting above threshold
deeper than 20mm. There (horizontal ruler of 3 metres value must be eliminated
shall not be more than 10m length placed perpendicularly within 20 days from the
of ruts on a street. across lane; rut depth detection.
measured as space between
horizontal ruler and lowest
point of rut, using a small
ruler with the scale in mm)
Raveling Ravelled areas must not Visual inspection Ravelled areas must be
exist. sealed within 28 days from
the detection.
Loose There should not be loose Visual inspection The pavement edges must be
pavement pavement edges, or pieces of repaired within 20 days from
edges pavement breaking off at the the detection.
edges.

5 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
The evolution from Direct Labour, through input based 2.3 F
 orm and extent of the
contracting to output based PBM has implemented PBM Contracts
a steady reallocation of risk from the Road Agency to
the private sector contractors; i.e. the public to the PBM within the road sector can be described as
private sector. “pure” or “hybrid”3. The former completely defines
all work items through performance indicators,
Risk allocation between public and private sector while the latter combines features of both PBM and
for various types of road maintenance approaches ad-measurement contracts with payment for most
of the services being linked to meeting performance
indicators. The payment for some (usually the more
Risk to Public Sector High

variable or contentious elements) is made on the


basis of measured quantities and unit rates.

PBM Contracts in Estonia


In 2000, the Estonian National Road Authority
IN-HOUSE INPUT- HYBRID OUTPUT- started using PBM contracts on a regular basis.
(Direct Labour) BASED (Combination of BASED
(Unit rates) input-based and (Performance)
10,288 km (63 per cent) of the national paved
output- based) and gravel road network, is covered under
five-year PBCs.
The PBM contracts are awarded only for those road
corridors where rehabilitation is not warranted
(only maintenance), so such PBM contracts can be
considered as ‘pure PBM’. These contracts typically
cover routine maintenance and winter maintenance
Low

(snow removal, snow blowing, ice cleaning).


Low Risk to Private Sector High

The contractor’s performance under PBMC is


based on self-compliance with his own (agency-
approved) self-control/Quality Assurance system
and is periodically checked by formal and informal
monthly monitoring inspections (instead of staff-
extensive, day-to-day works supervision), and is
complemented by road user complaints (if any) in
case of non-conformance with expected Levels of
Service (LoS) and maintenance standards and the
information originating from the Agency’s automated
Management Information Systems (MIS), when these
are in place.

3
The term Hybrid should be used carefully. It is sometimes used to describe contracts which combine maintenance with rehabilitation or other
construction works, even though all the works concerned are covered by a performance based specification. In this Paper the term is used only
to describe contracts which combine performance based requirements with significant elements of admeasurement works.
Performance based specifications are not limited to maintenance works and can be used for rehabilitation and construction as well.

June 2016 6
Output- and Performance-Based The level of complexity of a PBM contract can range
Road Maintenance Contracts in Serbia from “simple” to “comprehensive” depending on
the number of assets and range of services included.
With World Bank support, Serbia implemented At one extreme, a “simple” PBMC might cover just a
two pilot Output Performance-based Maintenance single service (for example, only mowing, only street
Contracts between 2004-2008 for routine light maintenance), and because of this simplicity
maintenance of about 1,200km of roads in the the contract could be awarded for relatively short
Mačva and Kolubara districts. periods (several months or one year). At the other
Both contracts were so-called “hybrid” contracts extreme, a ”comprehensive” PBM could cover all road
as each of them involved three types of payment assets within the right-of-way and comprise the full
mechanisms for executed works: range of services needed to manage and maintain
• A performance-based lump sum payment the contracted road corridor. Such services would
component for part of the road maintenance include routine maintenance, periodic maintenance,
works, verified by monitoring whether the traffic accident assistance amongst others. Such
required service level was achieved. complex contracts are usually awarded for much
• A measurement (unit-price based) payment longer periods. To get the most economic benefit
component for part of the road maintenance from the arrangement the Contractor requires time
works, depending on the quantity of measured to set up operations and to amortise his organisation
work executed. and equipment. Longer contracts ensure that the
• An additional works payment component for Contractor has an incentive to carry out works
emergency works in case of extremely harsh with their future performance clearly in mind and,
winter conditions – a separate calculation for additionally, long contracts assist with the economic
each individual event is done on the basis of a planning and execution of periodic maintenance
unit rate approach. works (for example, resurfacing, regraveling) which
are repeated only at infrequent, multi-year intervals.
Contracts should be as long as practical, certainly
A PBM may cover either individual assets (for from five to 10 years and can continue up to 30
example, only traffic signs, only bridges, only years. In such a long-term “comprehensive” PBM
pavements), or all or some combination of road much of the works are often outsourced by the main
assets within the ‘right-of-way’. Contractor to subcontractors.

Urban street maintenance Managing Agent Contracts (MAC) in the UK


in the city of Portsmouth (UK) The UK Highway Agency deployed its first
The City of Portsmouth awarded a long-term MAC contracts in 2001. Under MAC, the
contract (25 years) with performance-based Contractor assists the UK Highway Agency in the
features for maintenance of its urban streets comprehensive management and operation of an
in 2004. It is the first contract of its kind in the assigned network that includes all elements of
United Kingdom. roads and bridges, together with the associated
The contract covers all of the city road network highway technology (such as electronic road signs).
(480 km of roads) with adjacent structures (84
structures) and infrastructure (19,000 street lights,
traffic lights, etc.). The contract includes street
cleaning, winter maintenance and emergencies.

7 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
2.4 PBM Contract duration and A typical (although not mandatory) evolution of a PBM
progression programme is shown below.

Initial (pilot) PBM contracts are frequently relatively Progression of PBM contracts – time line
short term (perhaps only three to five years), often due
to artificial constraints imposed by budget regulations Type of PBM contracts Duration
and funding agencies or to a reluctance by the Agency 1st generation pilot PBM 3-5 years
to commit to a long-term project using new methods.
2nd generation PBM 5-7 years
In the longer term, it is better if contracts can be made
longer. PBM contracts for up to five or seven years are Comprehensive PBM 5-10 years
common and longer periods not unusual. This gives Comprehensive PBM + 15+ years
the contractor, working on a 12-month seasonal cycle, Asset Management
the chance to develop and optimise his management
and organisation and to set off much of the initial Depending on specific circumstances prevailing in
costs involved in a new venture4 against the long-term a country of operations, certain steps in the above
operating income. sequence can be skipped or merged and the duration
of PBM Contracts can be modified if feasible and
Ultimately, these long-term contracts are to the if they better suit the actual situation and specifics
agency’s benefit, as they produce better, more of the country. For example, there is a potential for
experienced contractors who are able to lay off trading off between geography and duration so that
substantial one-time costs over much longer periods, by bundling fewer/better roads, in cases where
whilst the use of fewer, longer contracts greatly other requirements are met, it is possible to have
reduces the agency’s procurement workload. longer initial PBM contracts or even to combine them
immediately with elements of Asset Management.
Restriction of funding to medium term at best is
a congenital problem for most funding agencies.
However, in many cases more severe problems arise
for statutory organisations, such as cities and/or
municipalities, who may have little control over their
budgets beyond the present year and no way at all
to secure the availability of funds over a five or seven
year contract.

4
Under a PBM Contract, the contractor should purchase/lease equipment, hire qualified staff, rent offices and warehouses, invest in inventory
and incur the costs for all of the above initially, in expectation of recovering such costs throughout the duration of the contract.

June 2016 8
2.4.1 P
 ilot PBM Contracts Option 2: (recommended)

The first step for most road agencies who have


decided that they need to move towards a system
of PBM contracting will be consideration of a pilot
project, very often with the support of IFIs.

The purpose of a typical pilot project is to:

• Test the existing institutional framework for longer


term implementation of PBM Contracts.
• Induce institutional, legal, organisational and
financial changes in the road maintenance system
in order to enable implementation.
• Test market readiness.
• Establish the right balance of risk allocation
between private and public sector.
• Create critical mass of knowledge and expertise in
the road agency and other stakeholders, such as
the control and audit authorities.
• Build up capacity of the local contracting industry to
implement new types of maintenance contracts. One territory composed by adjoining raions (second
level of administrative division) from three adjacent
Options considered for selection of a pilot area regions
for pilot PBM contract in Moldova
Option 1: Option 3:

One of the existing regions Two territories composed by adjoining raions from 2
adjacent regions

9 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
The duration of a pilot contract is usually for a 2.4.2 Second generation
minimum of three years, very often optionally PBM Contracts
extendable to five years, as was the case with pilot
PBM Contracts in Serbia. However, seven-year pilot Following implementation of a pilot PBM Contract,
contracts are not unknown too, such as in Ukraine. particularly if it was successful, the logical step
The duration of the pilot contract can be dictated forward is to expand the programme to a larger
by many factors, some of them being natural road portion of the road network and to improve PBM
maintenance/rehabilitation cycles and the economic Contracts based on lessons learned during the
exploitation periods for road maintenance equipment. implementation of a pilot project by launching the
second, or 2nd, generation of PBM Contracts.
Furthermore, the implementation of a pilot contract is
usually constrained to only a carefully selected part of Whilst some interim institutional solutions can be put
the network – the so-called pilot area – where a new in place to enable commencement of a pilot project,
concept is tested mostly in isolation from other areas by the time that 2nd generation PBM Contracts are
where road maintenance continues to be executed in about to be launched, proper institutional reforms
a traditional manner. facilitating performance-based road maintenance
should be put into effect as permanent solutions.
Although some pilot PBM Contracts may also include
initial rehabilitation as well as routine maintenance, The typical duration of 2nd generation PBM Contracts
it is recommended to keep rehabilitation and routine is between five to seven years, and they usually
maintenance separate, at least in the initial (pilot) include routine maintenance plus elements of
stages of PMB programmes. It is also important periodic maintenance.
to include only routine maintenance in the pilot
PBM Contract due to usually high rehabilitation
costs, which in turn overshadow the maintenance
component costs. Alternatively, when rehabilitation
is included, the pilot PMB Contract needs to take into
account the road life cycle and the need for increased
maintenance that usually arises five years following
the new construction or road rehabilitation/capital
repair. A minimum of seven years is recommended.

June 2016 10
2.4.3 C
 omprehensive PBM Contracts 2.4.4 Comprehensive PBM Contracts
and Asset Management
Once shift towards PBM Contracts is successfully
made through pilot contracts (one or two generations) A mature PBM environment can move forward and
and the institutional environment is reformed through combine performance-based road maintenance with
practical implementation of PBM Contracts in the full-scale asset management. In essence, this means
previous stage, a more complex form of the PBM that the road asset is handed over by the road agency
Contract, the so- called “comprehensive” PBM can be to a private contractor under long-term concession/
introduced. PPP (15-30 years). In principle, the contractor is
obliged to manage and maintain the asset in a
As noted above, a ”comprehensive” PBM could cover condition equal to or better than the one used
all road assets within the right-of-way and comprise when he took over the asset from the road agency.
the full range of services needed to manage and In practice, as in previous generations of the PBM
maintain the contracted road corridor. Contract, this is achieved through the requirement
that the contractor complies with contractually pre-
Such contracts would include routine maintenance, defined performance-criteria that enable at least the
periodic maintenance, traffic accident assistance, same or better level of service for the road network.
etc and are usually awarded for much longer periods - Naturally, the road agency should have LoSand the
usually from five to 10 years or more. corresponding performance criteria defined prior to
the award of such a PBM Contract and a detailed
condition survey is necessary prior to tendering,
in order to set a benchmark for measuring the
compliance with contractual performance criteria.

11 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
2.5 Initial repairs and emergency Rehabilitation is not a compulsory component of
works in PBM Contracts a “comprehensive” PBM. Some agencies include
essential rehabilitation as part of the performance
PBM contracts are essentially fixed price contracts, based contract using either the “Pure” or the “Hybrid”
although they will contain some provision to cover approach; others choose to handle rehabilitation
price variation, usually based on materials, equipment separately using traditional input-based ad-
and labour cost indices. However, they will also measurement contracts.
usually contain a schedule of prices allowing for the
reimbursement of costs resulting from necessary Performance-based Contracts are not limited to
emergency works, as measured work at unit rates. routine maintenance. Periodic maintenance and
This effectively enables the agency to carry the major rehabilitation can all be specified as lump sum
risks attached to unforeseen emergency works and, performance-based works.
by defining the nature and extent of occurrences
which would qualify as “emergency works”, to To include initial rehabilitation works in the PBM
calibrate the allocation of risk between agency and Contract has both advantages and disadvantages, as
Contractor. To the extent that most PBM contracts demonstrated below.
contain some allowance for emergency works they
may be said to be “Hybrid” contracts. However, the Advantages
term is usually reserved for contracts where the • Gives the Contractor an incentive to perform well
measurement element covers more than just major on the rehabilitation works to ensure good service
unforeseen emergencies. life of the rehabilitated road, avoiding subsequent
increased maintenance costs and disruption and
PBM Contracts can include measured works and discomfort for road users.
tendered rates for selected items through the • Ensures that maintenance will start immediately
use of “Hybrid” contracts. This can be used by after the rehabilitation works have been finished,
the Client to adjust the sharing of risk between rather than permitting the gap which often
Contractor and Agency. occurs before the new road is taken into a formal
maintenance contract. These pauses before
If sections of the roads in question are in poor proper maintenance commences can become
condition, the contract may also include provision for extended with consequential drops in Level
the rehabilitation of these sections. In this case, final of Service and accelerated deterioration and
design of rehabilitation works should be assigned periodic maintenance requirements.
to the Contractor and payments to these works
included in the lump sum contract price, forming a Disadvantages
PBM Contract that resembles a structure similar • A high rehabilitation component turns an intended
to a Public-Private-Partnership (PPP). A traditional maintenance contract into a rehabilitation
option to carry out the rehabilitation works using contract with an almost trivial maintenance
the measurement or “input” based method, with a element. This is particularly to be avoided
predetermined design and quantities and payments where the contract is intended to introduce and
made on the basis of measurements and unit prices, demonstrate PBM.
is not optimal and so not recommended as it removes • Drives up project costs; often diverting funds
the “performance” element from the Contract and intended for maintenance of extensive road
provides no incentive to the Contractor to optimise his sections into rehabilitation of much shorter
operations and costs. road lengths.
• It reduces the risk transferred to the Contractor
since the asset is in better condition and needs
less maintenance.

June 2016 12
2.6 Incentives and penalties Output and Performance-Based
in PBM Contracts Road Maintenance Contracts in Serbia.

2.6.1 Incentives Contractual penalties:

There is no explicit incentive for the Contractor in a Points accrued Demerit points Remedial
basic PBM contract. The incentive is implicit. If the for period thresholds action
Contractor can save money, through more efficient By end of 100 The Agency
working or through innovative methods, then this is 1st year (approx. 0.5% of may terminate
reflected in increased profits. the Contract value)
the Contract
By end of 160 The Agency
Output and Performance-Based (approx. 1.4% of
2nd year may terminate
Road Maintenance Contracts in Serbia the Contract value)
the Contract
The Serbian Pilot projects’ Contractor showed large
During the 200 The Agency
savings in winter maintenance supplies of road salt (approx. 2% of
3rd year may terminate
which were used to provide additional payments the Contract value)
the Contract
under an incentive formula.
During entire 175 The Contractor
Contract (approx. 1.6% of forfeits his right
2.6.2 Penalties the Contract value)
to participate in
any new tender
The PBM Contract includes some form of sanction on with the same
the Contractor if he fails to carry out his maintenance Agency in the
function properly in a timely manner. Such sanctions, next two years
implemented through contractual provision for
penalties, should incentivise the Contractor to Financial penalties:
perform and also provide the route for PBM Contract
termination in cases of grave under-performance. Number of points Valued to one point
Contractual penalties are usually linked to a From To in RSD
measurable set of Performance Indicators that are
1 50 20,000 (€200 )
usually set out in the PBM Contract through Technical
Specifications. Most maintenance operations are 51 75 50,000 (€500)
controlled by the time permissible between a fault 76 125 100,000 (€1000)
occurring (or being identified) and the fault being 126 175 120,000 (€1200)
rectified. Failure to carry out rectification/remedial
works within the permitted time will attract a penalty. 176 200 150,000 (€1500)
Different contracts express the penalty in different >200 200,000 (€2000)
ways and, especially for initial contracts, the penalty
regime may be varied to cater for the Contractor Penalties may be calculated in different ways. The
gaining experience; for example, a limited number of World Bank document considers each fault equivalent
faults may be allowed penalty free in the first year with to a length of road for which no payment will be made
the number reducing in successive years. in the month it occurs. The Serbian pilot contracts
used a system under which each fault attracted a
number of demerit points with a set penalty value
per point. In all cases there are limits on the total
penalties which are allowable with the Agency having
the option to consider the Contractor in default and
to apply financial penalties or in some cases even
contract termination. In the Serbian case, the limit
reduced in successive years.

13 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
2.7 Input-based and Performance-
based Road Maintenance -
advantages and disadvantages
Both input-based and PBM contracts have The traditional input-based contract when used for
advantages and disadvantages. On balance the PBM road maintenance, especially Routine Maintenance,
form of contract offers the preferable option, provided has both problems and benefits and places
that necessary financial backing can be found and substantial responsibilities on the Agency when this
that the overall road maintenance situation is not so could often be better carried out by the Contractor.
grossly underfunded that the reduced flexibility of the
PBM operation becomes impossible to accept.

2.7.1 Problems and benefits of input-based Road Maintenance contracts


2.7.1.1 Problems
• Inputs are dictated by the Road Agency. The Contractor carries out tasks as required by the Agency.
The Agency must devote substantial technical resources to define these tasks, to supervise them and
subsequently to measure the quantity and the quality of the work done.
• No focus on overall performance. As long as the Contractor performs the tasks to a technically
acceptable standard, he is entitled to be paid. He is not responsible for ensuring that the completed task
actually performs the required function.
• Programme of works is dictated by the Road Agency. The Agency will require tasks to be executed as
and when it considers them necessary and not when it is most cost-efficient for the Contractor, which is a
fundamentally uneconomical method of working.
• Reactive Routine Maintenance. The general model of Routine Maintenance under these circumstances
tends to be reactive with little scope for undertaking precautionary or preventive works in order to forestall
future demands.
• Numerous variations and claims. The contract has a considerable scope for variation, which can be
viewed by government as a convenient way to make economies and by contractors as a convenient way to
make claims. Neither action is conducive to an orderly and organised maintenance process.
• Resource-intensive procurement. Contracts are usually of relatively short duration (particularly for
Periodic Maintenance), hence frequent rounds of bidding for contracts become necessary which results in
inefficiencies and significant resources spent on numerous procurement procedures.
2.7.1.2 Benefits
• Planning flexibility. The Agency can remain free to direct maintenance efforts in any direction and to set
them at any level which the conditions dictate. Contracts can be phrased to avoid any commitment to
specific levels of maintenance or to specific roads.
• Fiscal flexibility. Flexibility in adverse conditions, especially financial conditions, as an input-based
contract can be used for road maintenance under any situation of bad road condition or fiscal constraint or
uncertainty.

June 2016 14
Once the problems of finance and flexibility have
been overcome, the advantages of the PBM system
are extensive. However, the PBM contract is not a
universal panacea which guarantees the solution
of all road maintenance problems. The format has
disadvantages as well as its clear advantages as
shown below.

2.7.2 Problems and benefits of Performance-Based Road Maintenance Contracts


2.7.2.1 Problems
• Maintenance standards if roads are in poor condition: Sometimes is difficult to formulate a specific
maintenance standard to define the maintenance operations, for example for roads in poor condition.
Even where continued maintenance in relatively poor condition is foreseen there is almost always going to
be a requirement for a high(er) cost initial phase to put roads into a condition where a specifiable level of
continuing maintenance can be executed.
• Inflexibility of standards: Once a standard had been specified and a contract let, the contractual
requirement for adherence to the standard means that the Agency cannot subsequently save money
by economising on the maintenance operations. Although to some extent this issue can be addressed
through contract provisions, that is through optional reductions in levels with the predefined reduction in
price determined at the tender stage, such an approach is not recommended as it does not incentivise the
Contractor to ensure the required Level of Service in later stages of the PBM Contract.
• Inflexibility of operations: The context of the PBM contract effectively constrains the contractors
operations to the specific road(s) covered by the contract. The Agency cannot make best use of a reduced
budget by transferring operations and resources to different areas of the system.
• Inflexibility of finance: The PBM contract commits a fixed amount of the maintenance budget to the
maintenance of specific roads for a specific period. There is no easy option for the Agency to change
these commitments to accommodate changes to its own financial situation, Although financing for the
PBM Contract should be secured prior to its commencement, nonetheless the reality in many transition
economies is that Road Agencies find themselves occasionally exposed to reduced revenue streams due
to economic and financial challenges which in return may have an impact on their investment priorities.
With single-year “classical” maintenance contracts such as prioritisation, although normally to be avoided
(if at expense of road maintenance) was easier achievable.

15 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
2.7.2.2 Benefits
• Expenditure certainty. The Contractor is paid a fixed price, based on a regular schedule, and the Road
Agency has a full understanding of forthcoming expenditures. Frequent claims and contract amendments
to increase quantities of work by the Contractor are avoided.
• Multi-year stable financing of a maintenance programme. Knowing the exact contracted amount, the
necessary resources to be committed for future years are clear to the Road Agency and the Ministry of
Finance, particularly as PBM Contracts require strong commitment towards secure and uninterrupted
financing of the Contract.
• Reduction of the in-house workforce. Adoption of PBM contracting reduces the staffing requirements at
the Agency level. There is reduced procurement, less need to supervise the works and little requirement for
interim or final expenditure verifications. For example, in Estonia, when 63% of the national network was
taken under PBMC the workforce of the national and sub-national road agencies declined from 2,046 in
1999 to 692 in 2003.
• Generally improved conditions of contracted road assets and reduction of road sections in poor
condition. It is generally acknowledged that successful PBM Contract implementation results in road
assets being returned in an improved condition compared to the conditions before the award. This is largely
due to the imposition of clearly defined requirements for maintenance standards which, because of the
nature of the contract, are not open to amendment. For example, through the implementation of CREMA
performance-based contracts in Argentina the maintenance backlog, that is the proportion of roads with
an IRI>4, has been reduced from about 35% to 10%; the proportion of roads in poor to bad condition, that
is with an IRI>5, has been reduced from 11% to a current value of about 2%, while the proportion in good
condition has increased from 65% to 90%.
• Greater road user satisfaction. Road users appear to become more satisfied with the services delivered
and condition of roads maintained under PBMCs.
• Better transparency and accountability. The PBMC approach provides clearly defined maintenance
requirements with improved control and enforceable quality standards. All agencies become accountable
to road users, responsible for providing them a better driving experience, while road users can more easily
understand the road standard they can expect and demand, and are satisfied to see the exact result of the
fees they are paying.
• The procurement model is more resistant to corruption than traditional input/output contracting.
(i) there are fewer transactions involved, therefore auditing is much easier, and (ii) the maintenance
standards in force can be made public and defined in such a way that the public is able to understand
whether contractual compliance is being achieved.

June 2016 16
3. I ssues and solutions to be
considered before PBM adoption
This section addresses the issues and challenges It has to be noted that focusing on the successful
faced in the implementation of a PBC and presents delivery of a PBM as the outcome, and regarding
them in a detailed and structured way. anything less as a total failure, is not appropriate.
Linked to the significant benefits of implementing
3.1 G
 eneral approach Asset Management, the benefits gained in
progressing towards a PBM are significant in their
Very few PBMs fail once implemented (although not own right, and the actual procurement of the PBM
all deliver the full benefits that were initially realised). is in many cases the “icing on the cake”. By not
Most “failures” of PBM are actually situations where pre-ordaining the outcome of the entire process as
the implementation did not occur at all. Even where “PBM must occur” and instead focusing on “Asset
implementation did not occur, there are potentially Management must occur, PBM may be a good
significant benefits to be gained from the prior support tool that will be examined at some stage”, the
steps, such as: the definition of levels of service, level of apathy towards PBM could be greatly reduced,
an understanding of the necessary funding levels as Asset Management does not in its own right
to deliver least whole-of-life cost solutions, risk require that PBM is the outcome.
allocation, and the collection and analysis of asset
data to gain a better understanding of the scope of However, most of the user benefits are gained
work required. through the actual implementation of the PBM, with
much of this often associated with the securing of
an appropriate funding stream to enable LoS to be
delivered.

Benefit realisation through PBM Contracts

Institutional Benefits User Benefits


100%
% of Benefit Gained

Asset Mgt Understanding Cost


Knowledge Levels of Service Savings

No PBC Concept Consultant Bidding Full Delivery


Understood Support Process

Progress of PBC
Source: G
 ericke, B., Henning, T., Greewood, I., Review of performance based contracting in the road sector-Phase 1, Transport Paper No. 42A,
The World Bank, 2014

17 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Performance monitoring is key to the success If a PBM has made it to the final link, then the result is
of this type of contracting road maintenance. The more likely to be a variation in the degree of success
methodology should be clearly and accurately spelled (for example, delivery of all LoS), rather than outright
out in the contract to prevent any misunderstanding failure. This is likely due to the fact that to make it to
from the Contractor’s side and avoid potential this final stage the PBM project would have received
disputes. Operational performance indicators high- level support within the agency for several
(KPIs) apply to the daily serviceability of the road (three or more) years, the understanding of Asset
network being maintained and include the condition Management would be reasonably well-advanced,
of the pavement and road furniture. The manner and other necessary enablers for the PBM to occur
and frequency of monitoring inspections of PBM would have been put in place (for example, training,
activities throughout the duration of PBM have to risk management, monitoring).
be defined. The whole project team should measure
performance, using the performance standards on
a daily, monthly and annual basis. On a daily basis,
the Contractor and field supervisors should survey
the system for deficiencies, while the Contractor
should maintain a daily log of activities as well. The
monthly review is a subjective windshield survey,
while the annual review is an objective engineering
evaluation. Both time critical (that is, the response
time) and condition-related performance measures
are considered in the evaluations.

June 2016 18
3.2 Issues and possible solutions
3.2.1 Legal Framework
3.2.1.1 Contract Duration – are multi-annual Maintenance Contracts possible
in accordance with a national legal framework?
Issues
Some countries have restrictions with the type and length of contracts which may be entered into.
The type of contract in some countries (such as Kazakhstan) is subject to specific definition which is linked to
contract duration, for example maintenance contracts may only be for one year.
This is commonly a problem where the type of contract - maintenance/rehabilitation/etc. - is too clearly defined
in existing legislation, with the result that contracts as defined maintenance contracts have a limited length.
For example, Morocco presently limits multi-annual contracts to three years, regardless of the definition.
Other countries such as Romania, Moldova, Kazakhstan and Serbia limit financing of Maintenance Contracts to
one year.
Apart from the issues above there are frequently regulations that have a legal effect (that is, the breach of
regulation can be construed as a criminal act), which constrain the implementation of contracts, especially
contracts of extended duration. For example, legal requirement that public procurement cannot be launched
unless 100% of project funds are secured.
For the Road Agency to enter into a contract, it must have assurance of its ability to meet its long-term
commitments under that contract. In some jurisdictions, regulations will ensure that such assurance is not
present. This is especially the case where maintenance is required to be financed from the recurrent budget
(that is, set annually) whereas a long-term contract (although for maintenance) needs a commitment over a
much longer period and might therefore require consideration as a part of the capital budget.
Solutions Enabling condition for
In some cases the problem can been resolved through the fact that national • 1st generation (pilot)
legislation permits the application of a supra-national principle that IFI loan PBM Contract
conditions take precedence over the national law. • 2nd generation
However, such use of the IFI conditionality is only a temporary expedient convenient PBM Contract
for early stages of a PBM contracting programme (pilot and 2nd phase PBM
Contracts) and will not cover the eventual situation where the Agency will need to
make its own contracts using national funding.
The long-term solution is appropriate revision of the national legislation and financial • 1st generation (pilot)
regulations to enable multi-annual road maintenance contracts and adequate multi- PBM Contract
annual budgetary framework when planning the national budget. These revisions • 2nd generation
should address at least: PBM Contract
• Appropriate duration of the contract, depending on the budget planning • Comprehensive
framework. For pilot PBM Contracts, it is generally considered it could be for a PBM Contract
minimum of three years.
• Enable transferring unspent maintenance funds from one year to another.
The Ministry of Finance needs to be involved, in addition to the Road Agency and the
Ministry of Transport.
IFI support may be necessary to push through legal changes to enable • 1st generation (pilot)
implementation of PBM Contracts and obtaining full support from policy and PBM Contract
decision makers in the government. • 2nd generation
Reforms of legal systems and other “soft measures” to enable PBM Contracts could PBM Contract
become covenants of IFI’s loan disbursement for future programmes in the road • Comprehensive
sector. PBM Contract

19 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
3.2.1.2 C
 ontract Type – Are PBM contracts in accordance with national contract classification?
Issues
Problems are also encountered where legal definitions specify the contract type in terms of the need to
measure quantities and make payments in accordance with contractual unit rates. This appears to be the case
in Romania where regulations seem particularly restrictive about the use of lump sum contracts for recurrent
maintenance operations funded from the State budget.
This problem can be additionally complicated by the fact that in certain jurisdictions (Romania, Kazakhstan),
performance-based maintenance contracts are not appropriately classified in the national contracts
classification system.
Solutions Enabling condition for
This might be solved by using unit rates for maintenance per km per month. For • 1st generation (pilot)
instance, this solution was used in Georgia in the past, prior to more comprehensive PBM Contract
legal reform, for design-build contracts in environment with similar legal restrictions.
In cases where applicable legal requirements are too specific to allow the strategy • 1st generation (pilot)
described above or where specific legal classification of performance-based PBM Contract
contracts is lacking and is otherwise necessary, the only way forward is reform of • 2nd generation
national legislation regulating financing road maintenance in order to bring it in line PBM Contract
with more flexible approaches towards financing recurrent maintenance tasks in a • Comprehensive
similar way as for capital investment. PBM Contract
Introducing PBM Contract classification in national legal and procurement • 1st generation (pilot)
regulation. PBM Contract

June 2016 20
3.2.1.3 C
 ompetitive bidding – Is Open Tendering possible in the initial (pilot) stage of PBM programme?
Issues
Many countries have quite strict rules regarding transparency and open tendering with the format for open
tendering being laid down.
This is reasonable on the surface but can act against introduction of new systems (such as PBM) where some
degree of cooperation/negotiation between Agency and Contractor, prior to contract signature, could greatly
ease the initial problems of introducing a new type of contract.
Similarly, extensive interaction between Client and Tenderers during and prior to the tendering phase may be
needed to properly allocate risks, and set the first PBM contracts.
Whilst these activities may be technically acceptable and indeed, desirable, there is always the possibility of
losing Tenderers using them as ammunition to upset the Contract or of giving rise to accusations of corruption.
Solutions Enabling condition for
Use of Open Tendering during the procurement in order to set a better and feasible • 1st generation (pilot)
risk allocation between the Road Agency and the bidders under PBM Contract. This PBM Contract
process, properly structured, does not constrain competition which is key for the
Agency to obtain a good price.
Most modern national procurement laws include the possibility to procure goods,
works and services through a two-stage Open Tender when they involve an
innovative scope of work. This is in line with EU regulations and recommendations
and should be encouraged when possible, particularly in the initial phases of a PBM
programme.
In some cases, such as when there is a lack of open competition as a certain
Contractor is best positioned to deliver a successful pilot Contract due to, for
example, geographical presence, there is scope to consider a Direct Award.
However, such an approach should be a rare exception rather than a rule as it may
raise a number of doubts about the transparency of the process and justification of
the criteria leading to such a decision.
More time spent on preparation of bidding and contract documents, preferably • 1st generation (pilot)
after intensive training and an awareness campaign amongst Contractors/potential PBM Contract
Tenderers and following dialogue with industry champions on the right balance • 2nd generation
between the risk and reward in a PBM Contract, and on the right risk allocation PBM Contract
balance between private and public sector. • Comprehensive
In some instances, like in Indonesia, IFI (the World Bank) would dedicate separate PBM Contract
funds for training the Contractor(s) in new methods of construction/maintenance as
part of industry capacity-building effort.

21 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
3.2.2 Financial
3.2.2.1 A
 vailability of funds – Is stable funding ensured to meet Agency contractual obligations?
Issues
The Agency’s annual budget may be a gross amount to cover all road expenditures with allocation to be
determined by the Agency, or it may already be split between maintenance and capital works by government/
treasury.
Any split may have been made with the Agency’s agreement/advice or may have been dictated to it.
The Agency presumably currently spends the whole of its annual budget and may have to consider how to
introduce PBM within its existing budgetary constraints.
It is likely that PBC will mean that costs for maintenance of the roads affected will go up even though, ultimately
will reduce overall costs and/or improve the standard of the roads. If the Agency budget is fixed, this will mean
less money to spend on the remainder of the network.
However, as often quoted, analyses carried out by the World Bank show that $US 1 invested in road
maintenance saves $US 3 that would otherwise be required for rehabilitation/capital repair of un-maintained
road over the same period of time.
Solutions Enabling condition for
In the shorter term, measures to assist funding for long-term maintenance contracts • 1st generation (pilot)
might include: PBM Contract
• Provision for the Road Agency to retain unspent funds to roll over from one year to • 2nd generation
the next. PBM Contract
• Earmarking of funds or Treasury guarantees that the funding for long term
contracts will be available.
In the longer term, reasonable cost planning for road maintenance would be desired. • 1st generation (pilot)
Routine and Periodic Maintenance cost should be well assessed. PBM Contract
Rehabilitation measures/Periodic Maintenance should whenever possible be • 2nd generation
separated and if feasible even excluded from pilot PBM contracts as with PBM fixed PBM Contract
monthly payments principle they make cash flow for contractors unattractive, due
to (in such cases) usually very high initial rehabilitation costs. These then usually
reduce substantially throughout the maintenance phase, as opposed to fixed
(and usually constant) periodic lump sum payments that do not resemble the cost
cash flow.
Consider introducing tolling systems and/or other ways of optimising road • 2nd generation
user charges to improve revenues from road users that would be used for road PBM Contract
maintenance. For example, Kazakhstan intends to introduce electronic toll collection • Comprehensive
and to use collected revenues for road maintenance and improvement. PBM Contract
Fair distribution of road user charges may increase available funding and stability
of funding for road maintenance. These road user revenues can be assigned to a
special Road Fund account.

June 2016 22
Solutions Enabling condition for
High-level commitment from the government to contribute improving management • 1st generation (pilot)
of public finances through resulting commitment to provide available and secure PBM Contract
funds for multi-annual maintenance contracts. • 2nd generation
The Agency must develop a clear case for the adoption of PBM, outlining the PBM Contract
improvements in road maintenance which will accrue, the immediate economic • Comprehensive
benefits which these will bring (primarily reduced Vehicle Operating Costs), the PBM Contract
improvements in public (voter) relations resulting from improved road conditions and
the ultimate savings which will be made in overall road expenditures resulting from
substantially longer intervals between periodic and rehabilitation interventions.
It is desirable that a comprehensive, overall, road maintenance strategy plan be • 2nd generation
developed to cover all these topics and unite them into a coherent government PBM Contract
policy. IFIs should be willing to assist with Technical Assistance to prepare such • Comprehensive
an overall strategic plan and subsequently to help with the implementation of the PBM Contract
revised maintenance strategies which will result in reduced road maintenance costs
for the Road Agency, better use of public funds for the government and better levels
of service for road users.

23 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
3.2.2.2 S
 ources of funding – Are stable multi-annual government budget allocations for road
maintenance in place?
Issues
Budget allocations for road maintenance are seldom driven by demand – more often they are reflecting a
country’s fiscal position during previous budgetary period and macroeconomic projections for the incoming
one. As a result, there may be no guarantee that next budget cycle’s allocation (often one year) will equal the
current one. This makes it difficult to enter into long- term contracts with fixed financial obligations.
Besides, road maintenance is often seen as a convenient target for savings as soon as fiscal times get tough.
This poses a question: are government commitments to the Road Agency reliable and how secure is road
maintenance funding?
Solutions Enabling condition for
IFI support is often valuable and necessary, particularly with financing initial stages • 1st generation (pilot)
of a PBM programme (1st and 2nd generation) with an emphasised rehabilitation PBM Contract
component (if not separated from Routine and winter Maintenance), but also • 2nd generation
with financing technical assistance services in preparation and design of PBMC PBM Contract
programmes.
However, the availability of IFI funding may also be limited in terms of duration,
depending on the Bank’s own policies. For example, if a Funding Agency’s framework
allows for loan-financed contracts to be effective for, say, up to 48 months after the
loan becomes eligible, that means loan proceedings could be used by the Agency for
payments only for that period, which limits the duration of the PBM Contract to about
the same period. Besides, maintenance in the PBMC is a “current” expenditure
that needs to be funded by “current” budget (coming either from road users or
taxpayers), not by passing the burden onto future generations through long-term IFI
loans.
Government contribution to the loan for rehabilitation may be treated as the
sovereign commitment part of the budget (as in the case of the pilot PBM contract
in Albania).
The long-term solution is the creation of an environment with smooth road • 1st generation (pilot)
maintenance funding on the premise that real-term financial effects can be achieved PBM Contract
if necessary future road maintenance is anticipated – proper funding for Routine and • 2nd generation
Periodic Maintenance can prolong intervals between capital road repairs. PBM Contract
In some cases the answer may be the creation of a Road Fund as a means to get • Comprehensive
round the uncertainties of central budget funding with a clearly defined, legally PBM Contract
committed source(s) of revenue which allows the Road Agency to plan with a
reasonably sure knowledge of its funding availability. This has been the case in
Western Balkans in various shapes and forms. Depending on the size of the fund and
the manner of funding it may cover only Routine Maintenance, or routine and periodic
or routine, periodic and capital improvements.
Such a Road Fund should have a reasonable degree of isolation from government
control/interference. This needs to be spelt out in the legislation setting up the fund
and implemented in a way which protects that isolation.

June 2016 24
3.2.3 The Contracting Industry
3.2.3.1 Capacity – Is local contracting industry developed and does it have adequate capacity to
implement PBM?
Issues
Most countries would like to remain self-sufficient in terms of road maintenance. It is a recurrent, year-in-year-
out activity and they do not wish to become reliant on foreign contractors for the work. However, this requires
an adequate capacity of the local industry. The Road Agency must consider carefully the adequacy of their local
industry.
The industry as a whole must have sufficient capacity to meet implementation requirements for PBM contracts.
The main questions about capacity are:
• Does the local industry have enough companies of a reasonable minimum size to carry out all the Routine
Maintenance requirements?
• Does the local industry have enough companies with which the Agency will be able to keep up a regular
schedule of truly competitive bidding?
• Do the local companies have the motivation to carry out PBM? They can be dragged into it as long as they do
not have enough other work. They may need to be persuaded as to the benefits which they will obtain - long
contracts with a regular income stream.
Solutions Enabling condition for
To some extent the Road Agency can address the issue of the industry capacity by • 1st generation (pilot)
setting the size of the maintenance contracts to the average capacity of the local PBM Contract
companies. But note that a purely Routine Maintenance contract can actually cover • 2nd generation
quite a large length of road for not too great an annual expenditure when compared PBM Contract
to other road construction activities. Eg. Routine Maintenance may cost from 2-5 %
of the cost of rehabilitation.
Balanced risk allocation - the Road Agency will need to consider the issue of risk • 1st generation (pilot)
allocation carefully in order to make risks commensurate to the capacity of the PBM Contract
contracting industry. • 2nd generation
Early contracts are likely to need the Agency to retain much higher levels of risk PBM Contract
than will be the case when PBM implementation is widespread. This can be • Comprehensive
accomplished through the use of Hybrid contracts PBM Contract

25 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
3.2.3.2 C
 apability and know-how – Does the local contracting industry have the required capability and
knowledge to implement PBM?
Issues
Capability and knowledge is required, as well as capacity..
One of the benefits of PBM is having the Contractor take responsibility for quality control.
During the implementation of a pilot PBMC Contract in Albania, it was noted that this was a shortcoming with
the local contractors. Contractors will need help in this area since local contractors will not have the Quality
Assurance expertise. The Albanian case also notes quite marked cases of contractors not being able to plan the
maintenance works adequately, although this problem reduced as they came to grips with the work.
Solutions Enabling condition for
The Road Agency might consider with IFIs whether a scheme to provide technical • 1st generation (pilot)
assistance to the Contractor(s) during the implementation can be set up. This PBM Contract
approach could help to get an initial PBM project off the ground. • 2nd generation
An example is Indonesia (Sumatra), where funding agency (USAID) had training PBM Contract
programmes for contractors as well.
IFI assistance could be considered to help provide technical assistance to local
contractors undertaking their first PBM contracts. They are likely to benefit most
from TA covering Organisation and Management and Quality Control.
It has the drawback that training is being given to just one or a few contractors but
this is always a problem with pilot projects.

June 2016 26
3.2.3.3 I nternational or local Contractors? Should only local contractors be eligible for PBM?
Issues
Early in the process, a basic decision is required regarding the use of International vs Local contractors. If a
decision favours international contractors, then this should be a long-term policy or it should be short term with
the aim of transferring maintenance to the local industry as soon as possible.
The alternative to using local contractors is to aim for international participation. There are some countries
which have little history of domestic contracting in the road industry; they must go international of necessity.
Equally, if a country does not have enough local contractors, or if the Agency feels that it needs the capability of
an international contractor, then international participation must be promoted.
Solutions Enabling condition for
Pilot contract sizes may be determined in light of the decision whether they are • 1st generation (pilot)
intended to use international or local contractors due to the expected capability for PBM Contract
them to deliver expected outcomes.
International contracting is likely to require substantially bigger contracts than would
be considered for local companies. There has to be a substantial financial incentive
for international companies to want to get involved - unless they are already present
in the country.
Smaller contracts of a size appropriate to local companies should be used if local
contractors are envisaged. If local contractors are sought then there should be as
many contracts as possible in order to spread the experience widely.
If international contractors are to be used for initial PBM Contracts, then it is • 1st generation (pilot)
probably desirable to encourage them to make maximum use of the capacities PBM Contract
of the local industry whenever these can be deployed for PBM Contracts. This • 2nd generation
may provide an opportunity for on-the-job training the local contractors in PBMC, PBM Contract
introduce local contractors to the PBM ethos and equip them to tender for further
rounds of PBM work in their own enhancing the competition for future stages of PBM
tendering.
The Road Agency should ensure that the international contracts should, at the least,
make provision for the maximum possible level of subcontracting to encourage local
participation, and may possibly make a certain level of subcontracting mandatory.
Note that IFIs have strict procurement rules that look for fairness and equality of
opportunities in the procurement of services to potential bidders when it involves
IFIs financing.5

5
The EBRD’s Procurement Policies and Rules (PP&R) state that “The laws and practices for carrying out procurement should not discriminate
between foreignand local products, suppliers or contractors and the procedures should be transparent and fairly applied.”
Read more at;
www.ebrd.com/cs/Satellite?c=Content&cid=1395236484644&pagename=EBRD%2FContent%2FContentLayout#0XczicG7ltf6sv9W.99

27 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
3.2.3.4 C
 ontract packaging - Adopting generic principles, packaging and format to the specific local
context6
Issues
What is the optimum design of contract packages for local contracting industry to be commensurate with their
capacity and risk appetite. Or otherwise, if there is no local capacity, for foreign contractors to be attracted to
come and share their experience and expertise.
Solutions Enabling condition for
PBM contracts aimed at the domestic industry need to provide experience as widely • 1st generation (pilot)
as possible. The Albanian example is noteworthy in this respect. The pilot project PBM Contract
was divided into four contracts, each of a size appropriate to the local companies. • 2nd generation
Direct experience was therefore spread relatively widely; in turn, this wider spread of PBM Contract
the direct experience is more likely to lead to a dissemination of experience through
the industry rather than a situation where only a single contractor is involved and
may try to keep his experience very much to himself.
Whilst much will depend on specific circumstances, for a simple pilot project, this
use of four contractors probably comes close to the limit of practicality. With even
more contractors, either the project will become too large or the contracts too small.
If PBM contracts are aimed at the domestic industry only and the likely outcome is
that they will be awarded to the local contractors, it is highly recommended to involve
the supervisor with the appropriate experience. Ideally ths should be done at least
for the initial stage until skills set is being transferred onto both the Agency and the
contractors.
However, the contract packaging then must be suitably designed to enable sufficient • 1st generation (pilot)
contract size to be attractive for an international contractor. In reality, this usually PBM Contract
implies a smaller number of larger PBM contracts. • 2nd generation
PBM Contract

5
The EBRD’s Procurement Policies and Rules (PP&R) state that “The laws and practices for carrying out procurement should not discriminate
between foreignand local products, suppliers or contractors and the procedures should be transparent and fairly applied.”
Read more at;
www.ebrd.com/cs/Satellite?c=Content&cid=1395236484644&pagename=EBRD%2FContent%2FContentLayout#0XczicG7ltf6sv9W.99

June 2016 28
3.2.4 The Roads Agency
3.2.4.1 A
 bility to change’ approach – Is the Road Agency willing and capable to change its role and
modus operandi?
Issues
Transitioning to PBM will require substantial changes in the way Road Agency staff work and think about how
the Road Agency itself sees its role and plans its work. The main questions during this transformation are:
• Does the Agency have a cadre of relatively young staff who can easily move from one job to another?
• Are too many of the present staff set in their ways and used to doing just one set of duties?
It is a basic concept of PBM that much of the Road Agency workload transfers to the contractor. With PBM it is
clear that the Agency should need fewer staff.
One of the benefits of PBM is that Agency workload should reduce - substantially. There are likely to be fewer
contracts altogether and as contracts will be for substantial periods - for example five years - you can expect
that there will be many fewer contracts each year.
The whole question of staffing and reduction in numbers should be considered carefully as the Road Agency
considers PBM itself.
If there is a constant turnover there may be problems with newly-trained staff departing and being replaced with
staff who do not understand the new system. This would be a particularly serious problem in the early years of
PBM adoption although it should ultimately disappear as the system settles down.
PBM will require a whole new way of thinking for the Agency staff. Some will adapt easily. There are others
who will have great difficulty; there are examples where staff have simply been unable to get to grips with the
idea that a contractor can be paid without physically measuring his work. The idea that in some months the
Contractor will be paid just the same, even though he has had to do no work to speak of, is unthinkable.
As the use of PBM develops, the Road Agency should be seeing the process in terms of remaking the Agency
itself. Many of the old jobs will disappear, for example supervisors will no longer have to be on site at all times
directing the Contractor what to do; that is now the Contractor’s business.
Continued

29 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Solutions Enabling condition for
Once the pilot project has succeeded, the Agency should try to formulate a long • 2nd generation
term policy, based on proposed maintenance strategy to determine future technical PBM Contract
activities and the required staffing levels. • Comprehensive PBM
It should then assess how these aims are to be met, which staff are the most Contract
valuable, how staff should be reduced. Note that staffing will be affected by the
Agency’s decisions regarding the use of Consultants.
Staff reduction can be effected in a number of ways:
• Natural wastage.
• Retirements.
• Redundancies.
• Transfers to contractors in some cases (especially where public organisations are
being privatised).
• Dismissals.
Based on the World Bank study, the Province of British Columbia was a pioneer
in outsourcing Road Maintenance under Performance-based Contracts (PBCs)
in Canada. The first round of PBCs was in 1988. Later on, Alberta (in 1995) and
Ontario (in 1996) introduced this approach. At present, 100% of provincial highways
are maintained under PBCs in British Columbia, 60% in Ontario and 100% in Alberta
(under Hybrid contracts). There has been a successful development of the local
industry as a result of this process.
The government employees working in the road maintenance were offered the
following options:
• Accept employment with the successful contractor in the district.
• Stay with the government and fill vacant positions anywhere in the public service.
• Take the early retirement package (if they were qualified).
• Resign.
• Severance pay was not available under any option.
At the end of the privatisation for the first round of contracts in 1988, 2,280
employees were transferred to the new Road and Bridge Maintenance contractors,
20 employees stayed with the government, a few resigned, and about 200 took
early retirement. In 1995, companies owned by ex-government employees held 16
contracts and controlled 57% of the total value of all 28 contracts. Today some of
those companies work internationally.7

7
Source: Performance-based Contracting for Roads in Canada - http://www-esd.worldbank.org/pbc_resource_guide/Case-Canada.htm

June 2016 30
3.2.4.2 Capacity, capability and know-how - Are there skills and expertise within the Road Agency
adequate, particularly in terms of project management?
Issues
Staff in most Roads Agencies in the transition region does not have experience with or sufficient detailed
knowledge of PBMC in order to design and launch pilots.
As well as preparing contracts and checking the contractors’ outputs, the Agency needs to be developing a
much more proactive Asset Management role; for instance, staff may need to handle pavement and condition
surveys, traffic counting, roughness surveys and vehicle weighing.
Unless there is a reasonable level of desire within the Agency, the change to PBM will be difficult and may well
fail. Failure often happens at the project preparation stage rather than the physical implementation. Once a
contract is up and running on the ground, then there are quite strong forces on all parties, pushing them to
make a success of it.
Solutions Enabling condition for
As PBM is rolled out, more and more Agency staff will become involved and they will • 1st generation (pilot)
find themselves taking on different roles with a changed perception of their duties PBM Contract
and functions -- providing appropriate training is available.
Intensive trainings for Agency staff is often required, particularly in the early (pilot)
stages of a PBM programme. Training programmes are usually organised by external
consultants hired to assist with institutional reform and design and the preparation
of (pilot) PBM Contracts. These typically include several modules:
• General awareness of the main principles of Performance-Based Road
Maintenance
• Preparation of PBM Contracts
• Administration, management and monitoring of PBM Contracts
Where local expertise is not immediately available, it can be purchased from • 1st generation (pilot)
overseas by engaging experienced international consultants who can assist the PBM Contract
Road Agency in the design and preparation of PBM Contracts, as well as for the
training of the Agency’s staff.
Given that very often the national procurement rules and budgetary constraints
make it difficult for the Road Agency to procure such services easily, strong support
from IFIs in providing technical assistance for design and preparation of PBM
contracts and training of Agency’s staff is desirable, particularly for pilot projects.
IFI-funded technical assistance is often available through various instruments, be
they grants as part of wider national or regional/sectoral programmes supported by
an IFI or as part of the loan arrangements.

31 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
3.2.5 C
 onsultants
3.2.5.1 S
 hort-term strategy - Does the local consulting industry have the required capability and
knowledge to implement initial stages of PBM programme?
Issues
To get the PBM process started, the presence of an experienced consultant will be very helpful. Such a
Consultant will be able to offer the Agency the knowledge that it lacks and provide much-needed assistance.
This possible need for consultant assistance depends on the confidence of the Agency, as well as the outlook
and versatility of its staff. The original instigators of the PBM approach did it without the use of consultants.
Expertise of experienced consultants is usually being used to support the Roads Agency in the design and
preparation of initial (pilot) PBM Contracts. This has happened in Albania, Serbia and to some extent in Moldova
as well.
Solutions Enabling condition for
In the initial phases of PBM introduction (a pilot project), an external Consultant • 1st generation (pilot)
may help with assessing the network, selecting candidate roads, preparing contract PBM Contract
documents, conducting Contractor workshops and training, bidding and evaluation. • 2nd generation
Subsequently a consultant may be recruited to function as or provide support to the PBM Contract
Agency’s Project Manager and Monitor for the initial contract(s) implementation, with
gradual training of the Agency’s staff and handing-over the supervision to the client
as is envisaged in the Ukraine PBMC project.
At the pilot phase you will need to insist that the international consultant affiliates
with at least one and preferably two local companies and that a training element for
these affiliates is written into the main consultancy contract.
There will be less concern regarding training for Agency staff, although this will still
be a consideration since the Agency should have some personnel who are familiar
with the whole process.
Following any pilot phase, if the Agency feels that it is now capable of acting for itself,
unaided, then the continued introduction of PBM may be carried out without further
assistance or, perhaps in the medium term with just a single headquarters adviser
to assist with general oversight, the preparation of contract documents and dealing
with specific problems.

June 2016 32
3.2.6 P
 olicy Makers
3.2.6.1 C
 ommitment of higher-level government – Is there a political will to introduce a PBM
programme?
Issues
Introduction of PBM can be an all-round challenging process involving not just the technical matters handled by
the Agency, but general policy considerations affecting senior policy makers as well.
The manner in which the Agency operates and the way in which it executes its remit is nearly always under the
scrutiny of senior policy makers to some degree. A significant change in its procurement ethos and contracting
methods, such as the change to PBM, cannot escape the attention of this group.
Policy makers generally can be taken to include ministerial levels and national elected representatives.
Without adequate support at these levels, PBM introduction is likely to fail. This is especially the case when
the introduction of PBM will require changes to legislation or budget planning; actions which cannot succeed
without the support of ministries, particularly the Ministry of Finance.
Solutions Enabling condition for
The Road Agency needs to be able to interact with policy makers, particularly with • 1st generation (pilot)
the Ministry of Finance, to explain the PBM concept: what it is, why it is different, PBM Contract
how it can improve roads for people and how it should save money for everyone in • 2nd generation
the end. PBM Contract
After all, the entire PBM exploit is about improved road conditions and better value • Comprehensive
for money. PBM Contract
Representatives of the Ministry of Finance should be involved in the process of
defining the PBM programme as early as possible, in order to better understand
processes and changes that are required as well as benefits to be gained in future
and to assist with creating a supportive environment for introduction of the PBM.
Early involvement of the Ministry of Finance in the design of a PBM programme
ensures they become one of the owners, supporters and promoters of the
programme. This is crucial for the success of a PBM programme, as it is the Ministry
of Finance who should ensure long-term commitment for funding a multi-annual
PBM Contract, without which the pilot PBM project and entire PBM programme
cannot be innitiated.

33 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
3.2.6.2 P
 roject size – Is the project of appropriate size to attract sufficient attention and support from
policy makers to implement changes?
Issues
There is a tendency for projects to have a “critical mass”. If they are too small they will not attract the attention
of policy makers and will therefore not receive the attention and priority which they require, especially where
policy makers actions are essential to secure necessary legislative or regulatory changes.
This was highlighted in discussion of an early attempt at PBM in Romania (Sfantu Gheorghe Municipal
Infrastructure Project), where the relatively small size of the pilot project meant that policy makers had no
incentive to bring about regulatory changes essential to implementation.
Solutions Enabling condition for
Design early stages of a PBM programme in such way that the project is big enough • 1st generation (pilot)
to attract the attention and support of key decision makers in the Government. PBM Contract
Select significant parts of the road network for a pilot project. For example, primary • 2nd generation
and secondary roads in 2-3 maintenance regions or primary or secondary roads only PBM Contract
in more (5-10) maintenance regions.
Projects should not be too big either, particularly in the initial stages, as they may be
too difficult to deliver.
Road sections selected for a PBM pilot should form a reasonably compact group.
Try to avoid political considerations to set up a project comprising widely separated
roads, which will drive up contracting and supervision costs and problems.

3.2.6.3 Electoral factors – Should elections cycle be taken into account as an important factor for PBM
programme?
Issues
A particular problem with elected policy makers is that many of them tend to have a limited view of events,
with much of their attention being governed by the electoral time cycle. Elected policy makers are less likely to
support actions which they see as being unpopular with voters as elections approach.
The political voting cycle is a fact of life and should be taken into consideration as a factor – the maximum time
horizon that politicians are interested in is from election to election.
Solutions Enabling condition for
A short-term solution involves awareness of the influence of electoral factor and • 1st generation (pilot)
planning the PBM programme, particularly its initial stages, by taking account of the PBM Contract
electoral timeframe. • 2nd generation
A long-term solution is the creation of an environment with stable road maintenance PBM Contract
funding and with a reasonable degree of isolation from political control and • Comprehensive
interference. This needs to be spelt out in the legislation setting up the fund and be PBM Contract
implemented in a way which protects that isolation.

June 2016 34
3.2.7 Control/Audit Authorities
3.2.7.1 Do Control/Audit Authorities have sufficient understanding of the PBM Concept and its place in
the legal framework?
Issues
In the transition region (as elsewhere in the world), the implementing agencies – including Road Agencies
– are accountable for managing the public funds to State Control/Audit Authorities (sometimes also called
Court of Accounts or Financial Inspection or Revision). These should ensure that public expenditures are made
in a transparent manner and that the best value for public money is obtained within the existing country’s
procurement and contracting systems, as well as other parts of legal framework.
Road maintenance operations, being treated as current expenditures, traditionally are contracted on the
measurement (input) based principle, that is, only executed and measured quantities of approved works are
being paid using unit rates for units of measured works.
“Pure” PBM Contracts are in essence lump-sum contracts through which the Contractor is no longer paid for
quantities of executed works but for maintaining the road to a required maintenance standard. Adherence
to maintenance standards is not being measured but monitored. The Contractor receives lump sum partial
payments in regular time intervals as long as he provides the required level of service for the contract road
through adherence to maintenance standards.
The shift from payment for the measured quantities concept to payment lump sum for an achieved
maintenance standard is paramount and unless the adequate legal framework exists for this type of contract
and unless such a shift in contracting method and reasons are properly understood by Control/Audit
Authorities, these may create many issues for the Road Agency who decides to implement the PBMC.
Solutions Enabling condition for
The early involvement of Control/Audit Authorities in understanding the concept and, • 1st generation (pilot)
most of all, its fiscal benefits is crucial and could be achieved through awareness PBM Contract
workshops designed specifically for them or preferably carried out at the same • 2nd generation
time and with the participation of policy makers (Ministry of Finance and other PBM Contract
stakeholders) too. This way, better coordination could be achieved in early stages • Comprehensive
of the design of a PBM programme. Moreover, if legal reform to enable PBMC is PBM Contract
required, the involvement of representatives of Control/Audit Authorities can be
beneficial as they could provide a valuable contribution to required legal reform.
That is, of course, if there is any interest of Control/Audit Authorities to take part,
something that should be encouraged by Road Authorities at all levels of the
Government.

35 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
3.2.7.2 P
 roject size – Is the project of appropriate size to attract sufficient attention and support from
policy makers to implement changes?
Issues
There is a tendency for projects to have a “critical mass”. If they are too small they will not attract the attention
of policy makers and will therefore not receive the attention and priority which they require, especially where
policy makers’ actions are essential to secure necessary legislative or regulatory changes.
This was highlighted in the discussion of an early attempt at PBM in Romania (Sfantu Gheorghe Municipal
Infrastructure Project), where the relatively small size of the pilot project meant that policy makers had no
incentive to bring about regulatory changes essential to implementation.
Solutions Enabling condition for
Design early stages of a PBM programme in such way that the project is big enough • 1st generation (pilot)
to attract the attention and support of key decision makers in the Government. PBM Contract
Select significant parts of the road network for a pilot project. For example, primary • 2nd generation
and secondary roads in 2-3 maintenance regions or primary or secondary roads only PBM Contract
in more (5-10) maintenance regions.
Projects should not be too big either, particularly in initial stages, as they may be too
difficult to deliver.
Road sections selected for a PBM pilot should form a reasonably compact group.
Try to avoid political considerations to set up a project comprising widely separated
roads which will drive up contracting and supervision costs and problems.

3.2.7.3 E
 lectoral factors – Should the election cycle be taken into account as an important factor for a
PBM programme?
Issues
A particular problem with elected policy makers is that many of them tend to have a limited view of events,
with much of their attention being governed by the electoral time cycle. Elected policy makers are less likely to
support actions which they see as being unpopular with voters as elections approach.
The political voting cycle is a fact of life and should be taken into consideration as a factor – the maximum time
horizon politicians are interested in is from election to election.
Solutions Enabling condition for
A short-term solution involves awareness of the influence of the electoral factor and • 1st generation (pilot)
planning the PBM programme, particularly its initial stages, by taking account of the PBM Contract
electoral timeframe. • 2nd generation
A long-term solution is the creation of an environment with stable road maintenance PBM Contract
funding and with a reasonable degree of isolation from political control and • Comprehensive
interference. This needs to be spelt out in the legislation setting up the fund and be PBM Contract
implemented in a way which protects that isolation.

June 2016 36
3.2.8 Road Conditions
3.2.8.1 S
 hould road sections in poor condition be considered for PBM?
Issues
Where roads are in poor condition – normally referred to as “not in maintainable condition” – the preferred
option seems to be to rehabilitate and then start maintenance. This is all very well for the occasional road
section, but where roads generally are in poor condition and finances are tight, it is useless to say they must be
rehabilitated before they can be maintained by PBM.
Contractors do have issues with taking long-term risk related to the maintenance of assets that are not in a
maintainable condition, unless there is detailed information on their status.
Solutions Enabling condition for
Contracts for road maintenance should be separate from contracts for road • 1st generation (pilot)
rehabilitation – it is recommended that the pilot PBM contract includes only road PBM Contract
maintenance without road rehabilitation. • 2nd generation
Data collection on road condition (an up-to-date road database) is essential in order PBM Contract
to prepare properly balanced PBM Contracts. • Comprehensive
Specifications need to be modified to suit the circumstances of each contract. PBM Contract
Roads which are in poor condition must be brought up to some kind of acceptable
minimum and suitable maintenance standards framed to cater for maintaining them
at that level. The right level of minimum work can be part of the Competitive Dialogue
or be advised by the Consultant.
The acceptable minimum might be no more than the essentials for preserving the
road structure in an effective functioning state. Having done this work as a least-
cost initial phase, perhaps spread over the first year of the PBM contract, then the
roads can be maintained in a stable condition until the financial situation allows
the Agency to consider whether, under the next contract, to maintain the status
quo, to specify further gradual improvement or to consider a Periodic Maintenance
intervention – or, perhaps, rehabilitation.
Some basic improvement of an existing, neglected road does not have to be done • 1st generation (pilot)
through wholesale rehabilitation. Some level of meaningful improvement can usually PBM Contract
be achieved through the application of regular maintenance practices. A substantial • 2nd generation
reduction in roughness may be achieved simply through the careful repair of all PBM Contract
potholes and cracks, carried out as a part of restoring the waterproof nature of a
bituminous surfacing.
This notion of improvement through maintenance should be applied carefully. It is
not a substitute for rehabilitation, but it does offer the chance to delay rehabilitation
by a substantial length of time at the price of a small increase in maintenance costs.

37 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
3.2.8.2 Should road sections in good condition be considered for a PBM?
Issues
There is sometimes a less obvious problem when dealing with the maintenance of roads in good condition;
all too often people believe that they need no significant maintenance at all – ‘just cut the grass‘. Some of the
policy makers might be the worst offenders of this attitude.
Even the best roads need maintenance and the roads in the best condition will repay maintenance over and
over again, because it is maintenance that keeps the value of that road as an asset.
Solutions Enabling condition for
The importance of proper maintenance of roads in good condition should always be • 2nd generation
kept in mind. Agencies should be on their guard against the belief that such roads PBM Contract
represent targets for cost cutting and must ensure that all concerned are clear • Comprehensive
about the maintenance needs and the longer term benefits of proper maintenance PBM Contract
of roads in good condition.
Data collection on road condition (an up-to-date road database) is essential in order
to prepare properly balanced PBM Contracts. If the road is not in maintainable
condition, it might be worth spending funds in upgrading the road condition rather
than in collecting the information.

3.2.8.3 Electoral factors – Should the election cycle be taken into account as an important factor for a
PBM programme?
Issues
Very low volume roads present different problems and are not usually the problem of the major Road Agency.
The trouble with these roads is that it is very often difficult to make out a case for having them at all, let alone
maintaining them.
The need for such roads is usually founded on social rather than economic grounds and it is social
considerations which say that they cannot be abandoned.
Solutions Enabling condition for
PBM holds the key to the economic maintenance of these roads. Not the usual • 1st generation (pilot)
complex contract with detailed maintenance requirements and LoS but a very PBM Contract
simple contract with a simple performance requirement: that access over this road
should be possible for a vehicle of a certain type at a certain minimum average
speed on every day of the year except, if appropriate, when snow depth on the road
exceeds a specified minimum depth or when snowfall in a specified time exceeds a
minimum.
If the Agency does have responsibility for the maintenance of roads of this type then
it might consider having a pilot project consultant prepare a suitable document for
their maintenance on these lines.

June 2016 38
3.2.8.4 What is the optimum design of a PBM contract in terms of road conditions?
Issues
The road sections within a proposed PBM Contract are likely to be a mix of good and bad roads with some
having been newly rehabilitated, or they may just be a mix of roads in fair to poor condition.
In one case, the Road Agency had decided that the PBM pilot project represented an opportunity to get a
group of neglected roads rehabilitated and virtually every road needed rehabilitation, resulting in a pilot PBM
maintenance project which was actually 85% rehabilitation works. This is not a recipe for success.
Solutions Enabling condition for
Ideally, a pilot PBM contract should include only maintenance of newly- rehabilitated • 1st generation (pilot)
or newly-built roads (after expiry of their respective Defects Liability Periods), and PBM Contract
in any case no less than 60% of the network should already be in good condition • 2nd generation
before commencement of a pilot PBM Contract. PBM Contract
Contracts for road maintenance should be separate from contracts for road
rehabilitation – it is recommended that pilot PBM contract includes only road
maintenance without road rehabilitation.
In cases where this is not possible or not desirable, particularly for the 2nd
generation of PBM contracts, the recommendation is that a minimum 50% of the
scope of the PBM Contract should be maintenance and a maximum 50% should be
rehabilitation.

39 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
4. Introducing performance-based
maintenance
This section addresses the issues and challenges
faced in the implementation of a PBC and presents
them in a detailed and structured way.

4.1 Enabling conditions


The experience from countries with a lengthy
implementation history of PBM Contracts indicates
that the following conditions must be in place to
enable PBM contracts, or are desired to facilitate the
successful implementation of such an approach.

Enabling conditions for PBM Contracts


1. Legal Required Desired
Multi-annual maintenance contracts possible in accordance with national legal ✓
framework (contract duration)
National contract classification, where it exists, should have PBM contracts ✓
amongst the possible contract types
Procurement by two-stage, open tendering at least in initial (pilot) stage of PBM ✓
programme, enabling Tenderers/Agency partnering contract terms whilst allowing
sufficient flexibility for the Tenderers to determine the optimised mix of technical
solutions and economical solution that result in a competitive tender.
2. Financial Required Desired
Stable funding to meet Agency contractual obligations must be assured (availability ✓
of funds)
Stable multi-annual Government budget allocations for road maintenance are in ✓
place (sources of funding)
3. Contracting Industry Required Desired
Developed local road maintenance contracting industry ✓
Local contracting industry has adequate capacity to implement PBM ✓
Local contracting industry has required capability and knowledge to implement ✓
PBM
Adopt contract packages and size the contracts to target the private sector that will ✓
more likely deliver successful services
4. The Road Agency Required Desired
Road Agency willing and capable to change its role and modus operandi ✓
Adequate skills and expertise within the Road Agency do exist, particularly in terms ✓
of project management (capacity, capability and know-how), or are readily available
on the market (new staff can be hired)
Road Agency’s monitoring system has to be rational and easy-to-use to be credible, ✓
whilst the sanctioning system for non-compliance with KPIs needs to be clear,
reasonable and workable. Automated systems are preferred, whenever their
deployment is feasible. Road users should be able to provide feedback to the
system / client

June 2016 40
5. Consultants Required Desired
Local consulting industry has required capability and knowledge to implement ✓
initial stages of PBM. Alternatively, involve international consultants to transfer
knowledge
6. Policy Makers Required Desired
Commitment of higher-level Government – political will ✓
Project is of appropriate size to attract sufficient attention and support from policy ✓
makers to implement changes
7. Control/Audit Authorities Required Desired
Understanding of the PBMC model by Control/Audit Authorities ✓
8. Road Agencies Required Desired
Only road sections in good condition should qualify for PBM Contracts. Otherwise ✓
use Hybrid Contracts.

Summary of desired and required factors for a successful PBM programme

Legal
10

6
Road Conditions Funds
4

2
Requirements
0

Status quo

Local Players Size

Capacity

From the above, it is clear that institutional factors


such as the legal framework, secured financing,
political will and capability of the Road Agency are
required factors. Without these factors it makes little
sense to initiate a PBM programme.

Other factors such as the existence of the


contracting industry and experienced consultants
is not necessarily a condition to commence a PBM
programme, although there is a lot of scope to
develop capacity in these areas once a long-term
PBM programme commences.

41 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
4.2 A
 typical PBM Programme 4.3 C
 ommencing a PBM Programme -
Pilot projects
Typical stages of a PBM Programme comprise the
following stages: The first step for most road Agencies who have
decided that they need to move towards a system of
I. Ensuring that minimum legal and financial PBM will be consideration of a Pilot project.
conditions enabling PBM are developed (up to 1
year). Before a pilot project can be implemented there are a
II. Design and implementation of 1st generation number of preliminary considerations to be dealt with.
(pilot) PBM Contract (3 to 5 years).
III. Design and implementation of 2nd generation 4.3.1 Legal, Regulatory and Financial
(pilot) PBM Contract (5 to 7 years).
IV. Design and implementation of a comprehensive
Climate
PBM Contract (7 to 10 years). Before attempting to introduce a first contract for a
V. Design and implementation of a comprehensive PBM, the Agency needs to ensure that all required
PBM Contract with Asset Management (15+ legal and regulatory provisions are in place to cater
years). for a contract of this type and length, as described in
previous sections.
Each stage includes the following steps:
Similarly, the Agency needs to be certain that the
• Contract strategy definition. necessary financial provisions are in place and agreed
• Development of model PBM Contract documents. to permit meeting the long-term financial demands of
• Selection of a pilot territory and data collection. this type of contract, without impinging unfavourably
• Finalising tender documents. on the Agency’s other maintenance obligations.
• Tendering.
• Contract negotiations and award. 4.3.2 Data
• Implementation.
• Benchmarking, monitoring and supervision. It is absolutely essential for the Agency to be able to
provide tenderers with a clear picture of the roads
A Gantt chart showing the timing and detailed they are being asked to maintain and types of the
sequence for each step at every stage of a PBM works which they are being asked to perform on
programme is shown further in Annex 4. those roads. Equally, it is essential for the Agency
to have a clear understanding of the condition of its
roads and of the works necessary to bring them to an
appropriate, sound condition for the functions they
are expected to fulfil.

June 2016 42
The Agency must compile adequate data for the Where urban road networks are concerned, the
information of contractors. It is no good simply telling data requirements become much more extensive.
the contractors to inspect the roads and make their Maintenance of urban networks can require much
own decisions. The tender provisions almost always more than a record of the visible assets, which will
require bidders to satisfy themselves as to the road include additional items such as street and traffic
conditions, but this is not a substitute for provision of lighting, sidewalks, kerbing, parking areas, together
carefully acquired data by the Agency which has an with all the associated signage and markings. The
in-depth knowledge of the roads and which should Agency must also obtain details of all aspects of the
be compiling data, as a matter of course, as a basic system which lie beneath the surface. Buried services
element of their asset management strategy. such as drainage, water and electricity will all have a
bearing on his maintenance activities either directly
Wherever possible, data for rural highways should because, like surface water drainage facilities, they
include: are a part of his responsibilities, or indirectly because
any operations by the other utilities concerned will
• Condition surveys of each road section. affect his maintenance operations.
• Roughness surveys (if possible historic surveys to
indicate deterioration rates). For a PBM tender any apparent work elements which
• Traffic data (including seasonal variation if are not described in reasonable detail by the available
appropriate). data will just result in the Contractor increasing his
• Distribution of vehicle types. prices. If the volume of the missing data is too great
• Axle loads and extent of overloading. it will result in contractors refusing to submit bids or
• Weather data for each road section (especially in bids becoming unacceptably high. Alternatively, it
winter weather data - temperature and snowfall will lead to inexperienced contractors putting in bids
records). which are too low and do not allow for the necessary
works at all, leading to subsequent implementation
If the Agency does not have this level of data then it problems and, perhaps, contract failure or the need to
should consider collecting as much of the above data renegotiate contracts in order to save the project.
as possible as a part of the project preparation.
4.3.3 Long-Term Strategy
At a higher level of PBM, under which the Contractor
is responsible for decisions regarding Periodic Having decided on the need for change in
Maintenance, data in respect of pavement strength maintenance philosophy, the Agency and its
will be required, usually Falling weight deflectometer government, must decide on a basic forward strategy
(FWD) test results and analysis. If the Agency regarding the means of implementation.
does not have this data itself, the PBM contracts
themselves can include allowance for the Contractor This strategy needs to determine how the future of
to carry out suitable tests and analysis and report maintenance is to proceed. Decisions should be
back to the Agency with the results. made regarding the use of contractors - local or
international and, if international, whether for the
short or long term.

At the same time decisions are required regarding the


future role of the Agency itself. See Section 3 for a
more detailed analysis of strategic decisions.

43 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
4.3.4 S
 election of roads for Pilot It is suggested that the first steps to initiating PBM
projects systems should be confined to a relatively simple
contract(s) for PBM covering the Routine Maintenance
Having decided on the need for change in of a package of rural highways/roads.
maintenance philosophy, the Agency and its
government, must decide on a basic forward strategy This approach allows the Agency to start devolving
regarding the means of implementation. the day-to-day operations and Contractors to gain
an understanding of PBM responsibilities without
4.3.4.1 R
 ural and Urban Roads involving either side in too great a level of complexity.

Rural highways usually comprise a relatively If such a contract goes wrong, it is the simplest one on
simple infrastructure with all elements within which to take corrective measures and one in which
the competence of a relatively small-scale roads the least damage will be done whilst such measures
contractor: pavement, side drainage, structures, are put into effect.
vegetation, signs, miscellaneous items such as
guardrails, etc. The current state of roads is likely to make
development of such a “pure” Routine Maintenance
Urban roads are fundamentally much more complex approach impractical with a practical implementation
and present problems including all the above, plus of the contract, requiring some form of initial
items such as: street lighting, traffic lights, kerbs, rehabilitation or improvement works to at least some
sidewalks, parking, underground services, primarily of the project roads.
water and drainage, but can also include telephones
and power, limited working space, pedestrians, and The need for such initial improvement works does
congested traffic with perpetual needs for control not invalidate the concept of a straightforward
and diversion. All this results in a far more complex maintenance contract, but the detail of the contract
interface to be managed which means less of a risk will become more complex since it will need to make
transfer to the Contractor. clear provision for some form of remedial works
period during which the basic defects in some or all of
Note that although some roads may appear urban the project roads are corrected.
as a result of their location/area, they can quite
reasonably be considered as “rural” because of their Where roads are in truly poor condition they should
basic nature - that is, none of the complexities of the probably not be included in an initial, simple, pilot
urban type. project; however, where large parts of the system are
not in good condition this level of selectivity is likely
4.3.4.2 Preferred Road Package not practical. In this case, the Agency should try to
avoid becoming enmeshed in a complex contract with
Routine Maintenance comprises the execution of the extensive rehabilitation provisions. Selected roads
basic regular tasks necessary for maintaining a road should be such that corrective measures required are
in good condition and preserving an adequate level as simple as possible with the aim of completing them
of service. Routine Maintenance is normally taken to in Year 1 of the contract with Routine Maintenance
include winter maintenance. Periodic Maintenance following thereafter.
comprises the operations required at less regular
intervals of more than one year to bring a road back Where this approach of limited works is considered
into peak condition. Usually some form of resurfacing, impractical then the inclusion in the contract of some
maybe combined with other activities. road sections for Periodic Maintenance is a possible
alternative.

June 2016 44
4.3.5 T echnical Assistance 4.3.6 Pilot Implementation
Any Agency proposing to transition from traditional 4.3.6.1 C
 lassifying and determining
road maintenance models, either in-house or input- appropriate maintenance
based contracting, towards the more modern PBM standards
model should consider looking outside for technical
assistance (TA). The use of Consultants has been As a precursor to establishing a PBM system it
discussed at length in Section 3. IFIs will be willing is necessary to set out a system or schedule of
to assist the Agency in securing suitable consultant appropriate LoS for different road types and traffic
services to guide the Agency through the transition to levels and to establish how these LoS should be
PBM. equated to maintenance operation performance
indicators.
There is a wealth of international experience available.
It is best if this is brought into the process at an Costing the risk over time
early stage. TA can assist the Agency with the whole Experience shows that there is a one-in-five risk
process of creating and implementing a pilot project, of some event happening on a 5-year contract.
including the procedures for: The estimated cost of rectification is US$ 50,000.
To the Agency, taking the long-term view, this
• Assessing the existing roads. risk is effectively a US$ 10,000 a year cost. To
• Classifying and determining appropriate a Contractor working on a 1-year Contract it is a
maintenance standards. potential US$ 50,000 cost, whereas to a
• Estimating costs. Contractor working on a 5-year Contract it is
• Selecting a roads package. also a US$ 10,000 a year cost.
• Assessing the local contracting and consulting
industries.
• Deciding on the use of local or international In order to specify the parameters for the
consultants and contractors. implementation of a PBM system, it is necessary
• Creating appropriate contracts and specifications. to assess the appropriate level of maintenance for
• The procurement process including different road types within the network, based on
prequalification. class and traffic, and then to apply that appropriate
• Evaluation and award of contracts. level to the actual road sections.
• Project management of pilot contract(s).

Prior to implementation of a pilot, the Agency should


decide whether to proceed alone or to seek TA. If IFI
assistance is being sought for the pilot stages, then
the IFI might also have requirements regarding the
use of TA services. Where the Agency is operating with
its own funds then the decisionswill also be its own.

45 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
4.3.6.2 Assessing the existing roads 4.3.6.3 Estimating costs
No maintenance programme can be set out without An important function of the TA will be to form
some understanding of the condition of the existing estimates of maintenance costs for the standards
roads and the traffic loads to which they are subject. of maintenance specified for the project roads.
Initial estimates should be prepared as a part of the
The Road Agency should really have a comprehensive procedure for establishing the optimum maintenance
database of condition surveys covering all its roads regimes for the country’s roads generally. These
together with data on traffic and importance. To can then be refined to cover the roads selected for
the extent that data on the road system, which is inclusion in the project.
not crucial for type of works under a PBM Contract
is not complete the PBM Contract should include Estimates of cost are obviously important in
provisions for the Contractor to make good/update determining the possible size and extent of the pilot
these data gaps on the contract roads as a part of project. The question of cost estimating is made
his duties under the contract. In any case, provision more complex in these early stages because of the
can be included for information to be updated during known tendency for early stage PBM contracts to be
and at the close of the PBM contract, thus helping to somewhat higher priced than expected. Partly due to
ensure that the Agency database is comprehensively the fact that the maintenance standards are clearly
updated. Similar provision in future contracts will specified and not subject to ad hoc modification to
extend this updating function until data on all roads suit budgets - this makes comparison with previous
under PBM is being continuously revised. maintenance costs very suspect - and partly because
contractors are likely to be cautious bidding for a class
The road assessment should be used to decide which of work with which they are not familiar.
are the most suitable candidate roads for inclusion in
the pilot PBM project, bearing in mind the desirability As the PBM system develops, these costing problems
of restricting work, as far as possible to Routine should dissipate; experience elsewhere shows that
Maintenance in the first phases of transition, with the like-for-like maintenance costs tend to stabilise
inclusion of some periodic elements if necessary and at lower costs under PBM. However, if existing
the avoidance of whole scale rehabilitation if at all maintenance has been of a noticeably lower standard
possible. than the PBM specification now calls for, then the
PBM maintenance may well end up costing as
much or more than previously but will yield a higher
standard of asset preservation with eventual savings
being realised in the reduced costs of Periodic
Maintenance and rehabilitation.

June 2016 46
4.3.6.4 Assessing the local 4.3.7 The Contract
contracting and consulting
industries The form of contract for initial PBM works should
reflect the abilities of the target contracting group.
Decisions regarding participation by both local This is especially important where that group is the
contractors and by local consultants will be coloured local industry.
by the capacity and capabilities of the local industries.
The World Bank document8 seems to be the basis
Before deciding on the form and scope of the PBM for most PBM contracts undertaken by MDBs but is
pilot it is desirable to evaluate these factors and really more suited to international bidding. Where the
assess the ability of the local industries to participate. local industry is less sophisticated, then attention
should be given to the possibility of creating simpler
Some Agencies would prefer to retain the whole documents with less complex specifications and
assessment and procurement cycle in-house, penalty procedures and simpler and more clearly
whilst others may go entirely the other way and spelt out obligations. This will require a combination of
aim to contract as much as possible of the work technical consultant and local legal expertise.
to consultants. The decisions in this respect will
depend in large part on a realistic assessment of The extent of initial road condition upgrade works
the capabilities and potential of the local consulting should be well-defined in the contract documents
industry and of the Road Agency, as well as on the or in accompanying condition surveys provided to
availability of international capacity in case the local bidders; the form of contract should either provide
consulting industry does not exist. for a separate scale of remuneration whilst these
works are accomplished, or should make clear that
4.3.6.5 Selecting a roads package contractors will be required to finance the initial costs
through augmented rates for overall maintenance.
Ideally the package should comprise a group of roads
which are contiguous and located within a reasonably It is recommended that, particularly in a pilot project
compact area. This will facilitate both the contractors contract, there should actually be a formula to pay for
maintenance efforts and the Agency’s supervision initial costs. A possibly simple formula might involve
work. A compromise may well have to be struck the tender maintenance rate per kilometre per month
between the desire for a compact grouping of roads during the first year being set at some multiple of the
and the aim of avoiding excessive initial works. rate for the remainder of the contract period. The
multiple would be determined by the Agency on the
Depending on the funding available and the estimated basis of cost estimates and fixed in the bid document.
costs of maintenance it may be possible to create Different multiples and durations might be set for
more than one contract. As discussed above, the use different road sections based on the assessed costs
of more, smaller contracts can be a desirable aim and condition.
since it will have the result of providing experience
and training for more than one contractor. Where it is not considered possible to implement PBM
without some element of more formal improvement,
The road package(s) and consequent maintenance the worst of the selected road sections might
costs need to be sized to suit the expected bidders. be considered for upgrading through a Periodic
Maintenance intervention as a part of the PBM
contract

8
-“Sample Bidding Documents; Procurement of Works and Services under Output and Performance-based Road Contracts”

47 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Simple Periodic Maintenance procedures can often 4.3.8 A
 llocation of Risk
be reduced to a set series of operations:
There are always risks when works are to be
• Repair existing pavement undertaken and these risks must be carried by one
• Overlay of the parties or apportioned between them. One of
• Repair shoulders the objects of PBM is to allocate many of the risks
• Renew pavement markings presently carried by the Agency to the Contractor on
• General cleaning and reshaping of side drainage the basis that, since he is now in a position to decide
• General overhaul of safety features - mainly how and when works shall be executed, he is better
guardrail able to assess and minimise these risks. However, it
• Minor repairs to drainage structures is no good allocating risk to the Contractor if such an
• Clean and tidy RoW. allocation will cost the Agency more than if it carried
the risks itself.

The risks involved in a PBM contract can be loosely


categorised as physical risks, contractual, and
financial risks. The extent to which these risks are
divided between Contractor and Agency depends on
the experience of the parties in PBM and the nature
of the roads to be maintained and is fixed primarily
by the provisions which the Agency writes into the
contract document. Additionally, the Contractor may
perceive certain elements of financial risk outside
the contract related to his own project financing
requirements. The main areas of risk are indicated in
the following table and discussed further below.

Risk Allocation
of Risk
Emergency works - major A
unforeseen physical works
Physical works (cost, amount C
and timing)
Other physical unforeseen works A
Asset management C (A)
Price escalation A (C)
Traffic and axle load variation C (A)
Site access and 3rd party A (C)
activity
Legal and regulatory changes A
A = Agency risk; C = Contractor risk; A (C) = Agency carries major risk,
Contractor carries minor risk

The allocation of risk indicated in the table is


appropriate to an initial or pilot contract where it is
important to provide the inexperienced Contractor
from excessive risk, or risk due to short contract
duration.

June 2016 48
4.3.8.1 Physical Risks The effect of most risk events varies very clearly with
contract duration. Longer contracts present less risk
This refers to the Contractor undertaking a PBM for contractors whilst enabling them to actually carry
contract with the risks of becoming involved in works more of the risks.
of a magnitude greater than that which he had
foreseen in his costing. Intervention times as a function of maintenance
standards
The works of Routine Maintenance are visible and Many maintenance operations, particularly
readily assessed; they will vary from road to road those applicable for paved surfaces remain
depending on present condition. The risks for the much the same regardless of traffic volumes.
Contractor come in forecasting events beyond They are needed to preserve the pavement as a
the normal and providing for them in his costs. functioning asset. Where maintenance standards
Emergency works’ provisions and similar Bill of will show variations is in the permissible timing for
Quantity (BoQ) provisions, as already discussed, interventions.
are a means by which the Agency takes over risks
A lower standard of maintenance, for example,
arising from extreme or unforeseen events. These
will allow a Contractor more time before a pothole
provisions are an element in the PBM contract where
must be repaired, but it must still be repaired since
Bill of Quantity items covering certain types of works
one function of the pavement surface is to prevent
associated with potential risks are provided. The
the ingress of water. The presence of the pothole
Contract specifications will describe the events which
affects traffic as if there is a lot of traffic the impact
constitute Emergency Works, defined by the extent of
(and cost) is greater, whereas if there is little traffic
the event and/or by the type of remedial works which
the impact is smaller. The economics dictate that
would be required; any remedial measures required
the pothole should be repaired quickly in the high
under these definitions will be paid as additional
traffic volume case but that there is no hurry,
works using measurements of work done and paid
as long as there is no consequential pavement
using BoQ items and rates.
damage, as in the case of low traffic volume.
A PBM contract with an ad-measurement element
such as this is usually called a Hybrid contract, where In essence, the shorter the contract, the more risks it
the BoQ works element is greater than might be is appropriate for the Agency to carry.
required to cover only the truly exceptional risks.

The Hybrid contract provides a means of taking


a standardised contract and calibrating the risk
allocation between Agency and Contractor, simply by
adjusting the size and nature of the BoQ elements. A
PBM contract in a well-developed PBM contracting
environment with long, multi-year contracts executed
by experienced contractors, might include Emergency
Works covering only the effects ofa major flood and
landslide events, whereas a shorter, initial pilot
project, aimed at contractors with no PBM experience,
might include the Emergency Works triggered by
much smaller floods and landslides, and could also
include much of the snow and ice clearing operations
of the winter maintenance phase.

49 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
4.3.8.2 C
 ontractual Risks 4.3.8.2.2 T raffic Volumes/Axle Loads

There are a variety of non-physical risks which are In the initial project data, the Agency should have
customarily dealt with under the terms of the contract provided the Contractor with details of traffic, in terms
and have the effect of allocating the risks to either of both vehicle numbers and axle loads, LoS, together
Client or Contractor. with an estimate of annual traffic growth.

4.3.8.2.1 Price Escalation Pavement maintenance is primarily affected by


axle loads, while pavement surface markings and
It would be unusual to contemplate a contract of shoulders are affected by traffic volumes. The overall
three years or more duration that did not include a difficulties of working on the road are also a function
price escalation clause of some sort. The Contractor of traffic volumes. Hence, the traffic data for the
has no control over the variation in prices of the various road sections within a maintenance contract
basic materials, plant and labour on which his works are important.
depend and, just as a normal admeasurement
contract (certainly where duration exceeds 12 The contract will normally include a formula allowing
months) includes price escalation, so should a PBM for increases in the Km/month maintenance rates
contract. The mechanism would normally be applied for roads where traffic and/or axle loads increase
from the end of the first year of the contract. substantially beyond the levels and rates given in the
contract data.
Depending on the precise formula used and on the
indices selected, the contract can be framed in such To give effect to a mechanism of this nature, either the
a way that the Agency effectively carries the full risk contract must include the necessary provisions for
of price escalation or escalation can be distributed monitoring both traffic and axle loads or the Agency
between Contractor and Agency. The usual approach must have in place a reliable means of monitoring
would be for the Agency to shoulder, roughly, the full outside the contract. In this case the means of
cost of escalation from the end of year 1; this has monitoring should be open to the contractor’s
the effect of making the Contractor responsible for inspection since it may affect his remuneration.
escalation prior to that date. The rationale for this
approach is that it is reasonable for the Contractor to
be able to make an estimate of near-term escalation
and also that much of this near-term escalation
may not affect the Contractor since he will already
carry equipment, spares and some materials in his
inventory.

June 2016 50
4.3.8.2.3 A
 ccess to the Site/Third Parties/ 4.3.8.3 Contractor’s Financing and
Utilities the Banking System
In order to carry out maintenance operations Although at first sight the question of availability
efficiently and economically, the Contractor requires of finance for Contractors would appear to be a
and is entitled to unrestricted access to the site. Contractor’s risk, it is in fact of importance to the
Where the Agency is aware in advance of factors that Agency. There will be considerable problems in
may impede this access, then details can be given securing tenders for a PBM if the local banking
in the Contract Data and the Contractor is required system is not prepared to offer the necessary finance
to make allowance in his costings. However, there for contractors to implement PBM contracts.
are many instances where access problems, and
subsequent remedial works problems, arise which However, this risk is very limited since it will only apply
were not foreseen at the tender stage. Perhaps the to Pilot projects that require significant initial works
most common problem is that of utility companies which should be avoided in most cases other than in
opening up the road surface, without warning or Rehabilitation contracts.
permission, perhaps interfering with the Contractor’s
activities, and then executing substandard The Contractor requires his bank(s) to provide both
remedial works which then add to the Contractor’s working capital and also to arrange the necessary
maintenance workload. Tender, Performance and Advance Payment
Guarantees. Although this is common practice for
Such problems can either be dealt with through the Contractors working with the public sector, if the
Emergency Works provisions, the Agency then taking local banking system cannot or will not meet these
all risk, or alternatively, under a system whereby demands there are substantial problems in placing
the lesser occurrences fall to the contractor’s the works with local contractors. It is desirable that
account and only major problems are classed as the Agency ascertain, before proceeding, whether
Emergency Works. What should be avoided though such problems exist and, if they do, what reassurance
is turning PBMC into a perpetual Emergency Works. the banks will require in order to proceed.
As the experience with MAC/EMAC/ASC contracts
in UK shows, the best way to avoid this situation is
to have contract management teams that merge
representatives of both the Contractor and the
Agency/Client and who work as partners, rather than
as “adversaries”.

4.3.8.2.4 Legal and Regulatory

When the Agency reimburses the Contractor as a


result of legal and regulatory changes occurring after
contract signature this leads to significant extra costs
that are specific to the service provision. A general
change in law (taxes for example) will not lead to
compensation for the Contractor.

51 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
4.3.9 T he Timeline for a pilot
PBM Contract
In considering the construction and implementation
of a pilot PBM project, attention must be paid to the
timing and the amount of time likely to be taken in the
preparatory stages.

Commencing with the need for possible legal and


regulatory changes and allowing reasonable times
for the procurement of TA services as well as the
actual PBM procurement, the time required for the
implementation of even a 3-year pilot project could
easily run to a total of four years.

Year 1 Year 2 Year 3 Year 4


Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1st generation contracts (3-year pilot
PBMC, preferably hybrid and routine
maintenance only for 300-500 km)
Enabling legal and financial conditions
to introduce PBMC
Procure Initial TA
Develop Maintenance Standards
Assess local Contracting and Consulting
capacity
Assess Roads Generally
Preparation of templates for PBM pilot
project for routine maintenance
Data collection for preparation of PBM
pilot project for routine maintenance
Selection of pilot areas for PBM pilot
project for routine maintenance
Preparation of bidding documents
for PBM pilot project for routine
maintenance
Procure Project Management TA
Training for potential bidders
Procurement of pilot PBM contracts
Pre-bid workshop
Contract award for pilot PBM contracts
Implementation of pilot PBM contracts

June 2016 52
4.3.10 Procurement 4.3.11 Supervision and Control
The key features of the procurement process are The Agency must exercise a supervisory function to
twofold: confirm that the Contractor is fulfilling his obligations.
To do this, the Agency appoints a Project Manager
• The regular procedures of invitation, (PM) who is both responsible for checking that the
prequalification, tender and contract award Contractor is compliant with the contract and who is
• The additional need to ensure that interested also the principal link between Contractor and Agency.
contractors are educated in the needs and
intricacies of PBM estimating, tender preparation The PM certifies, on the basis of comprehensive site
and execution. checks and control checks on the contractors quality
control/laboratory, that the standard of Routine
Appropriate tender documentation will be prepared Maintenance works is acceptable and on this basis
with the help of the TA consultant. Where the Agency the Agency pays the Contractor the contracted
looks for the involvement of local Contractors, the use amounts due. If the PM identifies work which is not
of the two-stage tender (involving prequalification in acceptable or faults which have not been rectified
the first stage) is highly desirable since, in addition in accordance with the specification, the contract
to the advantage of being more selective in choice of contains provisions for deductions to be made
tenderers, it offers considerably greater opportunities from the contractor’s monthly payment and the PM
to interact with potential tenderers for training and certifies these penalties.
education sessions and also enable pre-qualified
tenderers to spend more time in preparing well the Where abnormal works are undertaken under the
main/key elements of their tender. Emergency Works’ provisions these are measured in
accordance with the terms of the contract and paid
This question of contractor training is, perhaps, one for at the unit rates tendered by the Contractor. Such
of the most important aspects of the procurement works have to be executed to specified standards,
period. In many countries, securing an audience of just as would have been required under a traditional
interested contractors for extensive training sessions admeasurement contract.
on the details of PBM is simply not possible. It is only
when the prospect of an actual contract is held up If the contract has been designed with a large
that the interested contractors come forward and can proportion of work to be executed at unit rates (that
be clearly identified. The procurement process should is, the Agency is carrying a high proportion of the
make attendance at several training seminars as well contract physical risks), then provision for this needs
as pre- qualification and pre-bid meetings compulsory to be made in the supervision arrangements since the
for would-be bidders. Even though they will frequently PM’s staff will need to be proportionally higher than
be unwilling to admit it, most contractors know little would otherwise have been the case.
of a PBM where it is not already in use, and this
procurement period may be the only opportunity to The use of automated systems, such as Road
ensure that the local bidders receive some grounding Weather Information Systems (RWIS) should be
in the proposed methods. encouraged whenever possible. As an example from
the implementation of a pilot PBM project in Serbia
During preparation of a pilot PBM contract in shows, the use of RWIS reduced the consumption of
Albania, only one seminar for contractors together de-icing material for winter maintenance by about 50
with a pre-bid meeting largely devoted to PBM per cent.
techniques were held. Contractors subsequently
said they needed more instruction before bidding.

53 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
4.3.12 Incentives and Penalties 4.3.12.2 P
 enalties

4.3.12.1 Incentives The contract has to include various forms of


sanction on the Contractor if he fails to carry out his
While it is common to talk of incentives for maintenance function properly in a timely manner.
contractors, it is actually not easy to incorporate them Most maintenance operations are controlled by the
into the relatively simple contracts that will form the time which is permissible between a fault occurring
basic initial steps into a PBM. (or being identified) and the fault being rectified.
Failure to carry out rectification/remedial works within
The essence of the contract is that the Contractor the permitted time will attract a penalty. Different
undertakes to carry out certain tasks and the contracts express the penalty in different ways and,
Agency pays him a set amount for doing so in especially for initial contracts, the penalty regime
accordance with the specified standards. Under may be varied to cater for the Contractor gaining
normal circumstances, the Agency will not require the experience; for example, a limited number of faults
Contractor to do more than is required by the contract may be allowed, penalty free, in the first year with the
and, in any case, will not have the funds to pay him an number being reduced in successive years.
“incentive” for doing so.
Penalties may be calculated in different ways; the
There is no explicit incentive for the Contractor in a World Bank document considers each fault equivalent
basic PBM contract. The incentive is implicit. If the to a length of road for which no payment will be made
Contractor can, through more efficient working or in the month it occurs: the Serbian pilot contracts
through innovative methods, save money then this is used a system under which each fault attracted a
reflected in increased profits. number of demerit points with a set penalty value
per point. In all cases there are limits on the total
In the long term, where the contract places penalties allowable, with the Agency having the option
responsibility on the Contractor to control roughness, to consider the Contractor in default if the limit is
for example, the contract will have an allowable rate exceeded. In the Serbian case, the limit reduced in
of roughness deterioration. If the Contractor is able to successive years.
control this and ensure that roughness is lower than
the contract has allowed for, then there will be a VoC
saving. In this situation there is a case for providing
some form of cash incentive for the Contractor to do
better than the contract limits. This would require
a sophisticated approach with an understanding
within government that savings were being made
at the national economic level through the VoC
savings which justified the additional funds being
made available to meet the Contractor’s incentive
payments.

June 2016 54
4.4 A
 fter the Pilot - The Way Forward 4.4.2 T he Inclusion of Periodic
Maintenance
4.4.1 The Expansion of a PBM
It has been noted above that Periodic Maintenance
Following implementation of a successful pilot might need to be included in an initial pilot project.
project, the Agency will, presumably, wish to press on Even if this is not the case, if it is the Agency’s
with the introduction of a more widespread PBM. intention that Periodic Maintenance should become
a part of the PBM system, then there is a good case
As already noted, it is likely that the pilot project for including periodic elements in the succeeding
contracts will have had to make some provision for tranches of PBM contracts.
initial repair works and the measures written into the
pilot contract documents can be expanded to cover Periodic Maintenance is likely to require more quality
the wider requirements of a larger PBM maintained control than straightforward Routine Maintenance,
roads system. particularly asphalt surfacing material and laying
standards. This additional level of control will require
In Albania, an initial pilot project comprising four additional supervisory effort from the PM team and
contracts for 250 kilometres of national highway needs to be allowed for in the team make-up.
maintenance with some initial improvement
works was concluded satisfactorily for three of Although paid for on the basis of a set rate per unit
the contracts in 2012. In 2016, this had been length, the periodic work will require more stringent
expanded into the tendering of four international control of standards of workmanship and materials
contracts covering some 1,500 kilometres and with use being made of a standard roadworks
75 small local contracts covering about 2,000 specification for this purpose.
kilometres, to provide PBM maintenance for the
whole of the national network. Payment for Periodic Maintenance operations is
best made on the basis of progress achieved using
some simple formula, such as 80 per cent of the
rate payable per kilometre for completed asphalt
surfacing and the balance of 20 per cent payable
for each kilometre certified as complete by the
project manager. An arrangement along these lines
keeps payments reasonably in line with contractors
expenditure and reduces the need for expensive
interim financing.

55 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
4.4.3 Execution of Rehabilitation Rehabilitation projects may be let as standalone
projects, as construction followed by prolonged
As the Agency’s familiarity with PBM methodology periods of maintenance or as elements in larger PBM
and versatility grows and as the capability of its contracts. These contracts can be structured under
contracting and consulting industries improve, it will a PPP model where the Contractor was repayed
find that it is possible to extend the range of PBM in the long term by the Agency for the cost of the
activities to include not just Periodic Maintenance but rehabilitation based on the fact that the Contractor
also full-scale rehabilitation. meets performance requirements. It requires a much
more detailed risk allocation, which addresses risk in
Rehabilitation differs from Periodic Maintenance, the long term and results in a bankable contract that
both in the depth and complexity of the operations the Contractor will use to raise financing. However,
involved and in the fact that it will require significant PPPs are not part of the scope of this paper.
design capability. This design requirement will
frequently require the Contractor to take on a
consultant as either a partner or a sub-contractor.
From the Agency’s perspective, the preparation
of the contract will be more complex, requiring a
comprehensive set of requirements which the design
is required to fulfil. These will include such elements
as geometric design parameters, safety parameters,
structure requirements, design traffic loadings, land
acquisition limitations and so forth.

By taking responsibility for the design and


construction, the Contractor is able to use the
methods which suit him best and to adjust the
alignment to suit his perceptions of the most
economical construction methods.

In 2014, Georgia undertook a 220 kilometre


performance-based design and build road
rehabilitation. The contractor was given an
old, existing design for the road to form design
parameters and act as a basis for his tender. He
elected to change pavements from flexible to
concrete and to move major bridges, of his own
design, from planned locations to new alignment to
facilitate construction.

June 2016 56
5. K
 ey messages to the EBRD and
road authorities in transition
region for the future
The PBMC is a useful delivery model for governments • Long-term funding commitment for road
to provide road services. It demonstrates savings maintenance – IFIs may help in initial stages of
and efficiencies in the long term, but requires project preparation and capacitation, but ultimately
careful definition of the strategy and a set of enable it should come from public budget. Maintenance
conditions being met. is acurrent cost that should not be financed in the
long term.
The long-term strategy starts by launching a pilot
simple project and work for warranting other long- Any Agency or Government considering
term institutional reforms during the implementation implementation of a PBC for road maintenance
of the pilot stage. The strategy should also address should avoid the following when embracing the
market reform and government capacity. programme and especially the pilot project:

Starting up the PBM industry is challenging. The • Short-term duration of the contract – the duration
trade-off is between small contracts for building should not be less than three years.
local capacity that may not generate a lot of value • Inadequate choice of roads in terms of remote
for money initially and large contracts that could locations and not-to-standard road condition.
attract international players (but may exclude local • Bundling rehabilitation with Routine and Periodic
contractors). Maintenance disproportionately when the
rehabilitation component is too large (>30 per cent
Institutional factors, such as the legal framework, total payments).
secured funding, political will and the capability of • Transfering too many risks to the Contractor, as
the Road Agency are required factors without which well as unreasonable risks such as inflation in the
it makes little sense to initiate a PBM programme. In long term.
summary, the minimum enabling factors needed for • Treating the Contractor as an “adversary” – rather
its success are the following: than building a partnership (within the limits of the
Contract).
• Minimum legal framework – multi-annual • Launching a pilot PBMC without the Agency’s
contracting, budgeting, contract classification commitment to a roll-on PBM programme in case of
and procurement laws that allow for some level of the pilot’s successful implementation.
dialogue with bidders. • Neglecting public opinion, which if addressed
• Political will – maintenance needs to be genuinely properly: i) could be one of the most powerful allies
elevated in terms of “political“ importance. This in ensuring successful and efficient monitoring;
is also required for the commitment to fund and ii) could create demand for road servicies that
adequately road agency and to support the initiative politicians cannot ignore.
over the electoral cycle.
• Road Agency capacities – mind change from Finally, do not get discouraged. The PBC model might
input-based to an asset management approach. result in a higher cost for the pilot project especially if
This also includes a shift to securing long-term compared with the status quo, but it is only in the long
funding to ensure that the agency has the credibility term when savings and efficiencies materialise that
to attract good contractors. Capacity can be built the industry develops and ensures true competition
over time, with consultancy help and support from and partnership with the Agency.
IFIs, but a minimum understanding is required from
the outset.

57 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
June 2016 58
6. A
 nnexes
Annex 1: An overview of innovative international contracting practices
for road maintenance
Source: Pekka A. Pakkala, FRA

Contract type
Out-sourced

Comments
Contractor

contracts
selection
Activities

Contract
In-house

included

duration

corridor

savings
Quoted
criteria

Area or
Alberta, X Routine Unit Hybrid 5, 6 & 7 95% Price 30 Areas 25% Winter
Canada Maintenence Years 5% Past Maintenance
performance Standby receives
abaout 35%
Lump Sum
Payment
British X Routine Lump Sum 10 Years 60% Price 28 Areas 10% Line Marking &
Colombia, Maintenence 40% Other Lighting are not
Canada included.
A single
contractor can
only win 4 area
contracts
Ontario, X Routine Hybrid 7-9 Years 95% Price 48 Areas 12% 16 Performance-
Canada Maintenence (Lump 5% Other Based Area
Sum & Unit Contracts
Prices) Remainder -
“Maintenance
Outsorced” by
the “Salesman
Model”
Estonia X X Routine Hybrid 5 Years 75% Price 16 Areas Up to 20% Own in-house
Maintenence New- 25% Other forces compete
7 Years against private
contractors. 63%
of Maintenance
is tendered
Norway X Routine Hybrid 4 Years Lowest 107 20-30% Client maintains
Maintenence Price, Areas most inspection
Conforming
Tender
Sweden X Routine Hybrid 3-6 Years 98% Price 136 20-30% New Winter
Maintenence 2% Other Areas Maintenance
Payment
Scheme
based upon
actual weather
conditions
Finland X Routine Hybrid & 3, 5 & 7 75% Price 85 Areas Over 30% New separate
Maintenence Lump Sum Years 25% Other contracts for
line marking,
resurfacing and
bridges are Long-
term duration

59 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Contract type
Out-sourced

Comments
Contractor

contracts
selection
Activities

Contract
In-house

included

duration

corridor

savings
Quoted
criteria

Area or
Holland X Different Lump Sum 1-3 Years 100% Price Many 30-40% Future -
Activities Areas Investigating
MAC model from
England and will
adapt Holland
Situation
Australia X X Routine Lump Sum 2-3+1+1 100% Price About Some Competition
(VIC Maintenence Years 50% of between
Roads) Network In-house and
Private Sector.
Still quite input
based
Australia X Basically All Lump Sum 10 Years 50% Price 8 Areas 20%
Western, 50% Other
Australia
England X Basically All Lump 5+2 Years 25% Price 14 Areas Over 10% Includes up to
Sum (Unit 75% Other £500k worth
Price for E-MAC of periodic
Undefined) is 100% maintenance
Quality (bridges or
(Target Price) resurfacing).
E-MAC is similar
to “Alliance
Model”
New X Routine Unit Price 3+1 Years Low Bid 24 Areas 10-15% Still using about
Zealand Maintenence Hybrid 3+1+1 Weighted 50% Traditional
+ All Lump Sum Years Avg. Maintenance
10 Years QPTO Contracts. Very
small staff
USA X X Activity Based Unit Price 1 Year 100% Price Corridor Unknown Outsource
(NCDOT) those activity
that are more
efficiently done
by Contractor or
balancing work
USA X X Activity Based Unit Price 1 Year 100% Price Corridor Unknown
(MDSHA)
USA X X Activity Based Unit Price 1 Year 100% Price Corridor Unknown
(MNDOT)
USA X X Basically All Lump Sum 5 Years 50% Price Corridor Unknown Does not include
(DDOT) 50% Other major bridge
rehabilitation

June 2016 60
Contract type
Out-sourced

Comments
Contractor

contracts
selection
Activities

Contract
In-house

included

duration

corridor

savings
Quoted
criteria

Area or
USA X X Basically All Lump Sum 5 Years 50% Price Corridor Unknown Still basically
(VDOT) 50% Other in‑house. Only
Proposed Lump Sum (New) 100% Price 1 integrated
3+3+3 contract (VMS).
New Contracts
planned
for routine
maintenance
3+3+3 years,
with low bid
USA X X 40% Routine Lump Sum 7+7 Years 40% Price Corridor Unknown Goal is to
(FDOT) (about Maintenence 60% Other achieve 80%
20%) 40% Salesmen Unit Priced Yearly 100% Price outsourced.
Using a
Maintenance
Rating program
(MRP) to
measure
performance.
10 years Rest
Area Contract

61 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Annex 2: International best practice The CREMA final unit cost over a full 5-year
rehabilitation and maintenance cycle has been
Example 1: B
 razil 19 per cent lower than the rehabilitation and
maintenance cumulative costs on 13 identified
Key facts: roads at the federal level, benefiting from separate
contracts for rehabilitation works and maintenance
• More than 150 CREMA PBMCs executed services afterwards.
between 2000 and 2008 covering about
30,000 km or 16 per cent of the Brazilian paved Under the traditional approach, many rehabilitated
roads network, reaching one-third of the Federal road sections were never followed by Routine
network and more than 10 per cent of the states’ Maintenance contracts, and when these occurred
network by 2010. there was an average gap of 2.7 years between the
• CREMA PBMC rehabilitation unit cost of works end of the traditional Rehabilitation contract and the
were 25-35 per cent lower than traditional beginning of the traditional Maintenance contract.
rehabilitation costs signed at the same period. This break in servicing the road, resulting from the
Maintenance unit costs have been 34 per cent difficulties of road administrations in planning, bidding
lower than the conventional maintenance unit and financing civil works’ contracts, has not occurred
costs. under CREMA.
• CREMA PBMC contracts executed between 2001
and 2006 on 5,000 km roads have reduced Overall, better results with respect to visual
the number of tender procedures by a factor distresses and the International Roughness Index (IRI)
of 7, when compared to what would have been were usually observed on the road favorable to road
needed in the traditional approach. sections maintained under CREMA.

The performance-based model adopted in Brazil Under a PBMC, maintenance services seamlessly
introduced a number of radically new features as followed rehabilitation works, without any need for the
regards traditional management of contracts in the executing Agency to specifically plan the intervention
road sector in Brazil, including: or prepare specific bidding processes for contracting
maintenance services. In addition, CREMA contracts
• lump sum/global prices contracts, instead of combining rehabilitation and maintenance have
classic detailed input-based contracts, with an been in place for considerably longer than the
important transfer of responsibility in the design usual duration for traditional rehabilitation and
and execution of rehabilitation works to the maintenance. Contract supervision has been eased
contractors thanks to CREMA’s simplified monitoring of the
• a remuneration based on contractors’ performance performance in executing the task and the auditing of
to achieve predetermined outputs, instead of inputs Contractors’ quality assurance processes.
admeasurements (means and material)
• an increased commitment of contractors to quality Finally, the success of CREMA contracts allowed for a
through self-control, in line with the ISO philosophy, substantial increase in the government’s commitment
instead of agency-led control. to road maintenance and rehabilitation, traditionally
neglected among road investment programmes.
The adoption of CREMA by the private sector has finally
been successful with: (i) a high level of competition at
the bidding stage, with in average of 14 competitors
per bid and an average discount relative to the
engineering designs estimates of 21 per cent, in line
with the situation observed for traditional contracts,
and (ii) overall better road conditions obtained at lower
costs in CREMA than in contemporaneous traditional
rehabilitation and maintenance contracts.

June 2016 62
Example 2: District of Columbia, USA The project team measured performance using
the performance standards on a daily, monthly and
Key facts: annual basis. On a daily basis, the project partners
surveyed the system for deficiencies; the Contractor
• US$ 70 million Federal aid-funded contract maintained a daily log of activities as well. The
implemented in the 2000-2005 period. monthly review was a subjective windshield survey,
• Rehabilitation and maintenance of 75 miles of while the annual review was an objective engineering
the National Highway System in the District of evaluation. Both time critical (that is, timeliness
Columbia. of response) and condition-related performance
measures were considered in the evaluations.
This project was the first urban, performance-based
asset preservation effort of its kind in the USA. The monthly evaluations were video-recorded and
Performance-based asset preservation aimed to distributed on DVD. A report for each evaluation
rehabilitate and maintain the roadway, roadside, was also generated. These deliverables helped the
bridge, and tunnel assets, while reducing overall Contractor plan and perform work, based on the
rehabilitation and maintenance costs by encouraging deficiencies noted during the survey. Most annual
innovative, cost-effective, and flexible preservation ratings were performed with an approximate 10
strategies. per cent sampling rate. The data was used to
evaluate performance against the appropriate
The 75 miles of the National Highway System (NHS) performance standards. In an effort to enhance
in the District of Columbia were heavily used by the NHS infrastructure by meeting or exceeding
residents, commuters, businesses and tourists. the performance standards, the project partners
The District’s NHS infrastructure needed Routine tracked the results of the project to date. For
Maintenance and timely preservation. The aging example, an overall and well-informed subjective
of the infrastructure and reduction in public sector score is computed monthly so the project team may
staffing forced the District to look at alternatives, such adjust strategies or methodologies as needed. The
as the DC Streets project, for timely preservation. evaluators assigned subjective ratings of good, fair,
and poor at the maintenance element level.
Assets covered by the project included tunnels,
pavement, bridges, roadside assets (that is, curbs, A summary of the results through month 56
gutters, sidewalks, retaining walls), traffic safety shows that there has been substantial subjective
assets (that is, guardrails, barriers, attenuators, improvement over the course of time (Figure 1). The
pavement markings, signs, lighting), roadway and worst month was month 3, with approximately 70
roadside cleaning, drainage structures, roadside per cent poor ratings. The best month was month 41,
vegetation, pedestrian bridges, weigh-in-motion when 99 per cent of the ratings fell in either the good
stations, and snow and ice control. or the fair categories.

The DC Streets project has allowed the District of


Columbia Department of Transportation to both
improve the condition of the assets on the NHS and
allocate their in-house maintenance resources to
local neighbourhood streets. The effort has also
provided local small businesses and residents with
increased opportunities for employment.

63 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Annex 3: Regional experience in the Key challenges
transition region – case
studies and identification During the implementation of the pilot Output-and
Performance-Based Road Maintenance Contracts in
of key issues
the Kukes and Tirana areas, the following challenges
were identified:
Albania
• Awareness seminars, provided to the contractors
Key facts:
at the pre-bid meeting, did not fully address
In the past, the Albanian Road Authority (ARA) and describe the risk, responsibilities, scope of
implemented a pilot project for the introduction of services, performance standards and performance
output and performance-based road maintenance levels and penalties for non-achievement of
(OPBRM) contracts between 2009 and 2012 in two monthly performance standards, so the contractors
geographical regions, Tirana and Kukes. The four were inexperienced to do this type of road works
contracts (two contracts in each region) covered using PBMC procedures.
approximately 265.8 kilometres of national roads. • Most contractors under-estimated the scope,
The main objective was to avoid a premature quantity and cost of the works during the bid
deterioration of these roads and to provide road preparation phase.
users with a level of service which is adequate for • Contractors failed to raise issues relating to
their needs, whilst at the same time reducing the the extent of the works and road condition, as
cost of maintaining these service levels. described in the bidding documents during the pre-
Currently, ARA is in the process of launching bid phase.
internationally targeted bids, using Output and • The whole PBM process was a new experience for
Performance-Based Maintenance Contracts contractors who were on a steep learning curve.
procedures, for four contracts, which will include • Contractors had problems in coming to terms
1,332 km of the primary and primary secondary with new ways of working and generating the
roads. commitment and belief required to get through the
The Government of Albania was and remains early part of the contract.
very keen on improving the efficiency of road • Contractors’ site management was not adequate.
maintenance through implementation of a PBMC. • Contractors’ failure to provide skilled and
There are no concerns about the long-term support experienced staff to perform the roles required
of the Government for long-term road maintenance under the PBM concept.
and PBMC.
Required conditions that should
Albania enjoys strong IFI support for road
be put in place to facilitate further
maintenance and safety programmes, including
development of a PBM
PBMC. The present four major PBM contracts are
being funded through IFI.
• PBM contracts require more preparation than
traditional FIDIC contracts and the scope of works
and services were not clearly understood during the
planning and bid preparation stage.
• There should be no contradictions between the
bidding documents and the specification.
• Performance criteria should cover all aspects of the
contract but take into account the fact that different
roads within a contract area might require different
service levels, that is, road condition, terrain,
availability of materials, capacity of contractor,
traffic volume and composition and environment.

June 2016 64
Kazakhstan Key challenges

Key facts: • Lack of market principles in the maintenance of


roads.
Kazakhstan has no experience with PBM contracts
• Usually contracts for maintenance of national
to date.
roads are for not more than 1 year, which is not
Until now, there was a single service provider for commercially attractive.
maintenance of the national road network: RSE • The classification of types of work is rigidly fixed:
“Kazakhavtodor”. Currently it is planned that RSE major repairs, medium repairs, maintenance. This
“Kazakhavtodor” will be put up for privatization. classification cannot enable conditions for the
A system of payment/tolling for use on the national formation of the more flexible forms of contract
road network has been recently introduced. To date, implied by PBM.
211 km is tolled. By 2020 it is planned for about • In Kazakhstan a quantitative method of
7,000 kilometres to be tolled. It is assumed that the measurement for contract performance and
fees charged will completely eliminate the need for payments is applied, rather than quality indicators.
additional financing. Thus, favourable conditions • There is no proper definition of LoS.
will be created for the implementation of PBM • There is no objective system in place for assessing
forms of contract on the toll roads. the technical condition of roads.
• The Ministry of Finance does not consider road
maintenance as a priority because these costs
do not fall into the category of the development
budget.

Required conditions that should


be put in place to facilitate further
development of a PBM

• Increase the term of maintenance contracts up to


5 years.
• Legislate to allow the use of PBM format contracts.
• Change the system of financing from the basis
of measurement of physical works executed to
quantifying and meeting qualitative indicators of
the road condition.
• Prepare standard technical specifications for
contracts.
• Implement a road asset management system
to objectively evaluate the technical condition of
roads.
• Implement pilot sites for this form of contract
for the transfer of experience in content, project
management, planning etc.
• Together with the IFIs, work on the issues of
development of technical specifications for these
contracts and their pilot implementation.
• Institute a clear division of strategic and realizable
functions between the Ministry and the national
operator for the development and maintenance of
roads - JSC NC “KazAvtoZhol”.

65 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Moldova Key challenges

Key facts: • Funding, in general, and for road maintenance in


particular has been erratic in the last 1-2 years.
Moldova has no experience with the
• The legal framework does not enable budgets to be
implementation of PBM contracts. Preparation of a
approved for more than one calendar year, although
pilot PBM contract is underway – implementation is
3-year budgetary frameworks are in place.
expected in 2017 at the earliest.
• No real experience or capacity in State Road
Routine road maintenance is carried out by 12 Administration (SRA) to implement PBMC.
state-owned companies,organised regionally and • Decisions are required regarding the future of
operating on a measured works basis. Periodic contracting in general, the relationship between the
maintenance is carried out by commercial commercial companies and the state companies
companies through competitive tender, as well as and, ultimately, the proper privatisation of those
on a measured works basis. However, there is no companies.
real competition in routine road maintenance as • In spite of workshops and information-sharing
rates for Routine Maintenance works are imposed through previous PBMC-related consultancies, a lot
by the Ministry/State Road Administration. more awareness and training needs to be achieved
Therefore, road maintenance companies are barely with local Contractors.
breaking even. • Although the Ministry of Transport and Road
Infrastructure seems to understand positive
aspects of and the need for PBMC, there appears to
be a lack of enthusiasm/political will elsewhere in
the Government (particularly the Ministry of Finance
in particular).
• Further IFI support is conditioned by the
Government of Moldovia fulfilling commitments
from previous loans.

Required conditions that should


be put in place to facilitate further
development of a PBM

• Technical assistance and training for road Agency


staff and for contractors.
• Promotional campaigns.
• Adoption of a market approach by the maintenance
companies.
• High-level Government support for the PBMC
concept, in spite of possibly expected higher initial
costs.
• Continuous IFI support with technical assistance
and funding.

June 2016 66
Morocco Key challenges

Key facts: • Morocco has launched a PPP law on January 2015


but there is no specific law on PBC.
Morocco has no practical experience with the
• The Moroccan regulation on contracts is based on
implementation of PBM contracts – two recent
quantities and the maximum contract duration for
tenders failed. The country has launched Pilot
Routine Maintenance works of roads is just three
contracts this year in the Agadir and eastern
years.
regions.
• No clear strategy or action plan.
Limited experience with contracting out road • If contracting is to be based on a service level and
maintenance in general – this work is mostly done not on quantities, then the selection of appropriate
in- house accoding to ‘public works department’, Performance Indicators and methods of measuring
principles. them are amongst the issues to be addressed.
The first experiment of contracting out the Routine • Decision makers see the costs of PBM as being
Maintenance by networks was in 1997. The higher than traditional systems.
second experiment was with contracting out road • Need of additional funds for road maintenance.
maintenance by axis. • Generating an understanding of PBC within the
road industry.
• Expertise and training of Road Directorate (RD) staff
to handle PBM.
• A general lack of suitable staff/HR.

Required conditions that should


be put in place to facilitate further
development of a PBM

• Suitable expertise to help the RD is required.


• Develop awareness of importance of Routine
Maintenance through PBC among political decision
makers.
• Organising seminars to deal with these issues.
• Sharing dialogue with partners (World Bank, EBRD,
OIC, and other institutions).
• Sharing draft contract with Contractors’
Association.
• Benchmark and share international experiences.
• Associate with consulting firms.

67 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
Romania Key challenges

Key facts: • The Romanian Court of Audits does not accept


that lump sum PBMC contracts are in line with
Romania has no experience in the implementation
Romanian legislation, as maintenance is not
of PBM contracts. There is limited experience with
considered as an investment and therefore must be
contracting out road maintenance in general.
executed on a ‘price for measured quantity’„ basis
Several previous attempts failed (Sfantu Gheorghe, or on the basis of measurable physical parameters.
Covasna, Buzau, Sibiu), mostly at the tendering • In the current circumstances, a multi-year,
stage (no bids received or contract finally not performance-based contract requires a similar
concluded). In most cases projects were funded by approach to that required for a design-build
the EBRD. contract. That is, it requires a detailed design
to be done twice: once for obtaining technical-
financial parameters for investment from relevant
authorities (required for building permit) and then
the Contractor’s detailed design.
• Problems with Procurement Law and Budgetary
Provisions (unspecified).
• No offers received for previous tenders for
Performance-based Contract for Management and
Maintenance of Roads (PMMR)– bidders mistrust
the Romanian legislative system.
• The Ministry of Finance sometimes undermines the
PMMR by posing the dilemna; ‘would it be part of
the public debt or not?’
• Projects tried so far were perceived as being too
small to attract the attention required to stimulate
change and produce a favourable environment.

Required conditions that should


be put in place to facilitate further
development of a PBM

• Enforcement must come from a single point that


would strongly push for such type of contracts.
Ministry of European Funds could be one such
point as they have similar experience with enforcing
projects funded through EU structural funds.
• Projects must be large enough in order to attract
sufficient attention of key government agencies to
change and enable implementation.

June 2016 68
Serbia Key challenges

Key facts: • Winter maintenance proved to be the weakest


performing component of PMBCs.
In the past, the Roads of Serbia (Serbian Roads
• There was no immediate follow up with a new
Agency - RoS) implemented Pilot projects for the
generation of PMBC following the successful pilot.
introduction of Hybrid output and Performance-
• The pilots incorporated substantial ‘unit rate’
based Road Maintenance (OPBRM) Contracts
elements in Hybrid contracts. These elements need
between 2004-2008 in two geographical regions,
to be reduced.
Mačva and Kolubara. The two contracts each
covered approximately 600 kilometres of national
Required conditions that should
and regional roads. Contracts were completed
be put in place to facilitate further
successfully in spite of initial difficulties, particularly
development of a PBM
with winter maintenance. Substantial cost savings
were achieved, particularly in winter maintenance.
• Government commitment to continuing with PMBC/
Currently, RoS is in the process of preparing bidding PBMC – in the case of Serbia it was lacking and
documents using procedures for Output and PBMC until recently the PMBC follow-up did not take place.
for maintenance of a further 3,000 km of the • Hands-on involvement in balancing and adequately
national and regional road network. allocating risks between contractual parties.
• Strong IFI support for road maintenance and safety
programmes, including PBMC/PMBC.

69 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
June 2016 70
Annex 4: Typical PBM programme
Ghannt chart
Source: Roughton International Ltd

71 Regional: Challenges in the Implementation of Performance-based Contracting for Road Maintenance - Policy Paper
June 2016 72
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